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China Widens Foreign Investor Access - BoA Merrill Lynch Comment

Tom Burroughes Group Editor 21 March 2013

China Widens Foreign Investor Access - BoA Merrill Lynch Comment

China is moving to open up its economy – the second largest in the world – to non-domestic capital as the Asian giant’s central bank formally granted qualified foreign institutional investors access to the onshore interbank bond market, a move that should boost the renminbi, or yuan, over time, Bank of America Merrill Lynch said.

In an Asian Strategy Watch note, Bank of America Merrill Lynch said it expects the speed with which QFII quotas fill up to accelerate.

There have been a number of moves by China’s policymakers to open up the country to overseas investments in recent months to help the country recover from its recent deceleration in economic growth. It is also seen as part of a move to develop the renminbi into a more international currency.

The move comes after the China Securities Regulatory Commission revised QFII rules last July, to allow QFIIs to invest in the same interbank bond market. The People’s Bank of China is the main regulator of this market and has set out detailed rules, paving the way for the actual entries to take place.

Since last August, foreigners’ bond holdings have surged from RMB92 billion to RMB192 billion (as of February), a 110 per cent jump in seven months.

As of 28 February, QFII quotas, standing at $40.8 billion, had been awarded to a total of 186 institutions, but the quota falls short of the total available at $80 billion.

Among the details of the new rules, the PBOB stated that QFIIs can now invest in equities, bonds and warrants; fixed income products; security investment funds; stock index futures.

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