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This story is from December 10, 2007
China allows more dollar flows
China on Sunday came up with a new script to give a different direction to its long saga of foreign investment.
BEIJING: China on Sunday came up with a new script to give a different direction to its long saga of foreign investment. It has trebled the limit of foreign investment made through the stock market to $30 billion. The move demonstrates the Chinese government's new-found fondness for the capital market route instead of the usually preferred foreign direct investment.
In India, there is no limit for FII inflows in stock markets though most companies are allowed to set individual limits.
Through most of the past one year, the Chinese government has sent out signals that it was trying to reduce the flow of foreign investments in order to counter a fast heating economy. A two-decade old policy of tax relief to foreign investors was withdrawn while the State Council, the country's cabinet, begun curbing investments in several selected industry sectors.
“We got the impression that China is slowing down its efforts to attract foreign investment,” India's finance secretary D Subba Rao said last week.
But the State Administration of Foreign Exchange (SAFE), which made the announcement, made it clear that it would control the direction of foreign fund flows to preferred industry sectors, SAFE would take into account China's international balance of payment situation and the conditions in the stock market in determining the appropriate distribution of foreign funds.
The fresh inflows from foreign investors would have the additional advantage of scaling up offshore investment by domestic institutional investors, who are being encouraged to invest in foreign stocks, it said.
China has 49 QFIIs holding securities assets worth $27 billion, SAFE said. The extent of increase in foreign inflows to securities market following implementation of new policy remains to be seen. SAFE said it would focus on medium- and long-term investments under Qualified Foreign Institutional Investors program. It would also offer foreign investors more diversified local products to invest in.
In India, there is no limit for FII inflows in stock markets though most companies are allowed to set individual limits.
The government regulates the cap in sectors like banking, telecom, defence and print media.
Through most of the past one year, the Chinese government has sent out signals that it was trying to reduce the flow of foreign investments in order to counter a fast heating economy. A two-decade old policy of tax relief to foreign investors was withdrawn while the State Council, the country's cabinet, begun curbing investments in several selected industry sectors.
“We got the impression that China is slowing down its efforts to attract foreign investment,” India's finance secretary D Subba Rao said last week.
And now, the authorities in Beijing have indicated that they have not lost their love for foreign money. They merely want to change the route of fund inflows to give further boost to a booming stock market. At the same time, it wanted to push domestic institutional investors to seek foreign investment pastures.
But the State Administration of Foreign Exchange (SAFE), which made the announcement, made it clear that it would control the direction of foreign fund flows to preferred industry sectors, SAFE would take into account China's international balance of payment situation and the conditions in the stock market in determining the appropriate distribution of foreign funds.
The fresh inflows from foreign investors would have the additional advantage of scaling up offshore investment by domestic institutional investors, who are being encouraged to invest in foreign stocks, it said.
China has 49 QFIIs holding securities assets worth $27 billion, SAFE said. The extent of increase in foreign inflows to securities market following implementation of new policy remains to be seen. SAFE said it would focus on medium- and long-term investments under Qualified Foreign Institutional Investors program. It would also offer foreign investors more diversified local products to invest in.
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