China may set up a new mechanism for foreign pension funds to invest in the country’s capital markets, the Wall Street Journal reported, citing people it didn’t name.
The new channel would be separate from the existing Qualified Foreign Institutional Investor program, the report said. The country may also introduce a specialized Qualified Domestic Institutional Investor plan to let wealthy investors buy Hong Kong stocks directly, Ming Pao Daily reported today, citing people it didn’t identify.
China is accelerating the opening of its capital markets, more than doubling quotas for QFIIs last month to $80 billion from $30 billion to expand their holdings in the nation’s stocks, bonds and bank deposits. The country needs more institutional investors such as pensions and the government is discussing tax reductions to encourage their investments, the China Securities Regulatory Commission said in a May 7 statement on its website.
“It may be possible that we’ll see a separate program, but really they are trying to achieve their quest to attract more long-term foreign institutional capital to open the Chinese market,” said Hubert Tse, partner at Chinese law firm Boss & Young in Shanghai who advises QFIIs, QDIIs, global hedge funds and private equity funds in China. “Now that they are increasing the inflow with QFII, they will need to balance the outflow by expanding the QDII.”
Retirement funds in Taiwan, Hong Kong and Singapore without QFII licenses may be among the first to be allowed to invest under the new system, the Wall Street Journal reported. Six overseas pension funds have won QFII licenses with a combined quota of $750 million, according to the statement. Another channel is for them to buy products issued by QFIIs, the CSRC said in the May 7 statement.
The initial size of the expanded QDII plan could be as much as about $50 billion, Ming Pao said.
This expansion “would be positive for Hong Kong,” said Tomomi Yamashita, a senior fund manager in Tokyo at Shinkin Asset Management Co., which oversees $6 billion. “If cash-rich China begins buying foreign currency, that would improve the global liquidity. I hope for that to happen.”
China scrapped a plan in January 2010 to allow Chinese nationals to buy Hong Kong stocks directly and instead expanded a program under which Chinese institutions can invest in overseas markets. The so-called “through-train” program for Chinese individuals was unveiled by regulators in August 2007 and helped push the benchmark Hang Seng Index to a record high that October.
“We continue to work closely with China Securities Regulatory Commission on refining existing and new initiatives on financial cooperation,” the Financial Services and the Treasury Bureau in Hong Kong replied in an e-mail to questions from Bloomberg News. “We do not comment on newspaper reports on specific items.”
CSRC didn’t immediately reply to a fax seeking comment. Phone calls to the State Administration of Foreign Exchange, the nation’s currency regulator, weren’t answered.
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