BEIJING - The
State Administration of Foreign Exchange (SAFE)
and the China Securities Regulatory Commission
(CSRC) granted last Friday QFII (qualified foreign
institutional investor) status to three foreign
investors - Schroders Investment Management Co
Ltd, HSBC Investments Ltd, and Shinko Securities
Co Ltd.
This is the third batch of foreign
investors to be granted QFII status in the third
quarter. On August 10, the two regulators named
US-based Stanford University, GE Asset Management
Co and United Overseas Bank of Singapore as
QFIIs. On July 10, Morgan Stanley Investment
Management Co and Prudential Asset
Management (HK) Ltd were
granted the same status.
This indicates
that Chinese regulatory authorities have
accelerated the process for considering and
approving QFIIs. This year, a total of 14 foreign
institutional investors have been granted QFII
status, of which eight were approved in the third
quarter. The figure also exceeded the total for
the whole of last year, which stood at seven.
If approval is made to one batch of three
companies every month over the rest of the year,
the annual figure will also far exceed the record
number hit in 2004 of 15.
So far, 48
foreign institutions have been granted QFII status
in China, and the combined investment quota
granted to them totaled US$7.845 billion - more
than three-quarters of the $10 billion quota China
promised to give to overseas institutional
investors.
Market analysts believe there
might be two reasons for the more rapid approval
of QFIIs: first, the regulatory authorities
promulgated new QFII administrative measures late
last month, which lowered the access threshold for
QFII status and raised the confidence of overseas
investors in the A-share market; and second,
existing QFIIs in China have been active in their
investment and participation of new QFIIs, which
is conducive to the stability of stock indexes
when initial public offering is resumed.
Data show that QFIIs have generally
adopted a long-term holding strategy, investing in
blue-chip stocks listed on the Shanghai and
Shenzhen bourses. And by the end of August, some
QFIIs even had a position proportion as high as
above 97%. China launched the QFII pilot program
in 2003, allowing foreign institutional investors
- such as the UBS, Deutsche Bank, and Citigroup
Global Markets Ltd - to engage in the securities
business in mainland China. Since then, the
regulator has been making efforts to improve rules
and regulations, in a bid to open the stock market
wider to foreign investment.
On August 25,
the CSRC announced the revised rules - which came
into effect on September 1 - concerning QFII, in a
bid to attract more non-speculative overseas
investment for the domestic stock markets.
Slashing the QFII threshold, they make it
possible for more overseas foreign institutional
investors to qualify as investors in Chinese
A-share markets. The rules stipulate that the
minimum securities assets managed by a QFII
applicant - such as fund management institutions,
insurance companies and other institutions that
stress long-term investment - are $5 billion for
the current fiscal year, half the earlier QFII
requirement.
Insurance companies must
exist for at least five years before becoming
eligible for QFII, a much shorter period than the
30 years under the former rules. Besides, QFIIs
will be allowed to open three securities
investment accounts with each of the country's two
stock exchanges.
Under the old rules
scrapped on September 1, they only had to open one
account with each stock exchange in cooperation
with their custodians and local partners. When
issuing the new rules, the CSRC also said it would
increase the quota of foreign investment in
Chinese stock markets.
Indeed, QFIIs have
turned out to be less speculative than other
institutional investors in China, official figures
show.
QFIIs tend to keep blue-chip stocks
for much longer periods, and their investment
style is relatively stable, the CSRC said, adding
that these investors have helped to stabilize
Chinese stock markets.
In 2005, the
change-hand rate of the stocks by QFII was 193%,
much lower than that of investment funds, whose
change-hand rate stood at 325%, the CSRC said.
Citing figures from stock exchanges, the CSRC said
that last year the change-hand rate of stocks
owned by social-security funds was 218%, the rate
of stocks owned by securities firms using capital
they pooled from investors reached 520%, while the
rate of stocks owned by securities firms using
their own capital was 360%.
