An easing of restrictions on foreign fund manager outflows from China will give overseas investors more comfort investing in the mainland, bankers and consultants said.
Beijing on Tuesday lifted a monthly 20% cap on the funds that investors have been allowed to take out China via the dollar-dominated qualified foreign institutional investor (QFII) scheme and its yuan-denominated sibling, RQFII.
The QFII channel, first introduced more than a decade ago, has been one of the main means for foreigners to invest in China. Although partially superseded by the Stock and Bond Connect schemes linking Hong Kong and mainland markets, the QFII quota - the amount each investor is allowed to invest under the scheme - offers the potential to invest beyond traded securities.
The mainland introduced China's qualified foreign institutional investor programme in 2003
In the latest changes, regulators also removed lockup periods for investment principal, and said they would allow investors using the schemes to hedge currency risk onshore.
The mainland introduced the QFII scheme soon after China joined the World Trade Organisation
Before this week’s announcement, investors using QFII and RQFII and the Connect schemes have only been able to hedge currency risk with the freely-floated version of the yuan traded outside the mainland.
This has proved difficult for some investors as liquidity in the offshore yuan is limited and it does not precisely followed its onshore counterpart.
The reforms are also likely to attract more investment into China.