China Almost Doubles Foreign Funds’ Access to Capital Markets

China will almost double a program for foreign funds to invest in its financial markets and expand a program for inward investment of yuan raised overseas, as the country loosens rules on capital flows.

The Qualified Foreign Institutional Investor program will expand to $150 billion from $80 billion, while a similar plan for Hong Kong-based yuan investors will grow to encompass Singapore, London and other cities, the official Xinhua News Agency reported today, citing the China Securities Regulatory Commission. The report didn’t identify the other locations.

Chinese authorities have expanded channels for cross-border capital flows and reduced controls over the country’s currency as part of Premier Li Keqiang’s pledge to give markets a greater role in the world’s second-biggest economy. Greater access for foreign investors may also bolster a stock market that’s slumped more than 10 percent this year.

“This is a gesture to show people the Chinese government is actually doing something to enhance the market liquidity,” Ronald Wan, a committee member at Hong Kong Securities & Investment Institute, said by phone. “This is a major moment for Chinese government to show they are doing something. It’s important.”

The changes to the QFII program have been agreed on by the People’s Bank of China, the State Administration of Foreign Exchange and the CSRC, Xinhua said.

China is also promoting greater use of the yuan in international trade and finance to decrease the country’s dependence on the U.S. dollar and move toward making the currency convertible for investment purposes. Financial centers from London and Singapore to Zurich and Frankfurt are competing to become regional offshore yuan trading hubs alongside Hong Kong.

Singapore, London

“It shows that the Chinese government is trying to push ahead yuan internationalization,” said Wang Qinwei, an economist with Capital Economics Ltd in London. “Singapore and London are natural choices to expand the RQFII program, due to the two cities’ importance on the global financial landscape.”

China’s central bank this week published rules allowing companies to lend yuan to their overseas subsidiaries or affiliated companies. The government will also allow companies to move yuan raised overseas through bond sales back into China through yuan accounts with local lenders, the People’s Bank of China said in a statement June 11.

— With assistance by Aipeng Soo, and Xin Zhou

Before it's here, it's on the Bloomberg Terminal.