Foreign investors will be allowed to plough a lot more money into China's stock market under a proposed new formula for determining inbound portfolio investment, a regulatory source said on Tuesday.
Under the plan, China would set a limit on foreign portfolio investment at 5-10 percent of the capitalisation of the country's domestic A-share market, which is currently around 10 trillion yuan ($1.3 trillion), the source told Reuters. That would translate into potential inward investment of $55 billion to $120 billion, which the source said would be allowed to flow in gradually over, say, eight to 10 years.
The proposed formula marks a big change from the current system, whereby the securities and currency regulators submit a proposal for a quota on portfolio inflows to the State Council, or cabinet, every two years or so.
The two regulators, the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE), back the new plan because it is more flexible, the source said. "The new formula is to set up a medium-term scheme under which CSRC and SAFE can make arrangements each year," the source, who declined to be identified, said.
Beijing launched the Qualified Foreign Institutional Investor (QFII) scheme in 2003, permitting selected foreign firms to invest up to $4 billion in China's equity and debt markets. The ceiling was raised to $10 billion in September 2005, of which $9.945 billion has now been allocated to 48 institutions - leaving a quota of just $55 million.
The regulatory source said the new formula could be in place by the end of the year. It was not clear whether the authorities would increase the $10 billion ceiling as an interim step.
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