China eases its capital limitations

Opening of financial sector

CHINA granted an additional quota for funds to invest in securities overseas for the first time in three years, easing capital curbs and further opening its $40 trillion (R493trln) financial sector.

The Qualified Domestic Institutional Investor (QDII) quota was bumped to $98.33 billion as of April 24 from $89.99bn, the first increase since March 2015, data from the State Administration of Foreign Exchange showed yesterday. The change followed similar approvals, which more than doubled the quota for two outbound portfolio investments, announced earlier.

A strengthening currency gave policymakers the confidence to allow more capital to flow out of the country, easing a policy of tough restrictions. The move also fits in with President Xi Jinping’s push for deeper integration with the global financial system, an initiative that’s seen China unveil plans to further open up to foreign competition, even as trade tensions flared.

“This shows the policy makers are no longer concerned with yuan weakness and are confident that the currency market will withstand some capital outflows,” said Gao Qi, Singapore-based strategist at Scotiabank. “China will continue to relax capital curbs – it will allow more outflows while seeking to attract foreign investors onshore. But the pace will be gradual, and the policy makers will have a risk averse attitude.”

People’s Bank of China governor Yi Gang pledged to accelerate the market opening in a speech earlier this month, including widening foreign banks’ access, increasing daily quotas in stock connects and removing restrictions on joint securities firms to allow them to take majority stakes in local joint ventures. Some ownership limits would be lifted as soon as June 30, Yi said.

The onshore yuan declined 0.2 percent to 6.3202 per dollar at 6pm in Beijing.

The QDII programme applies to domestic Chinese funds as well as foreign firms that are licensed to operate in China. – Bloomberg