China Regulator Says Foreign Investor Allotment Can Rise 10 Fold

China can increase by 10 times the size of two investment programs that allow foreign investors to buy securities on domestic markets, the nation’s securities regulator said.

The Renminbi Qualified Foreign Institutional Investors and the Qualified Foreign Institutional Investors programs together account for 1.5 percent to 1.6 percent of funds invested in Chinese stocks, Guo Shuqing, chairman of the China Securities Regulatory Commission, said at a conference in Hong Kong today.

Guo’s comments sparked a more than 2 percent jump in China’s benchmark Shanghai Composite Index, the biggest gain this year. Stocks surged on the prospects that foreign funds allowed to invest in local markets will increase, said Bank of Communications Ltd. strategist Hao Hong.

“The possibility that foreign investors can buy shares, even if it’s a possibility, is very bullish for stocks,” Hong said in a telephone interview. “Guo’s comments are very significant as it shows the government is trying to get bullish on stocks and it’s a policy signal as well.”

Chinese authorities may also let individual investors participate in the Renminbi Qualified Foreign Institutional Investors, or RQFII, program in its next phase of expansion, Guo said today. The program, which is now open only to Hong Kong units of Chinese financial companies, allows investors to channel offshore yuan back to the mainland.

K.C. Chan, Hong Kong’s treasury secretary, said today talks between the city and the CSRC on the plan to let retail investors join the program were at an early stage.

Guo said in November that authorities had agreed to increase the RQFII program’s 70 billion yuan ($11 billion) quota by 200 billion yuan. In April, China increased the size of the Qualified Foreign Institutional Investors, or QFII, program to $80 billion.

Regulators would “definitely” expand the foreign-currency quota under the QFII program once the current allotments of $80 billion are filled, Guo said Dec. 20.

— With assistance by Stephanie Tong, and Aipeng Soo

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