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September 5, 2009

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QFIIs may see investment funds rise

CHINA plans to raise the amount that individual foreign institutions can invest in the mainland's stock markets after the benchmark index tumbled more than 20 percent last month - the biggest monthly drop since October.

Investors under the Qualified Foreign Institutional Investor program can each invest as much as US$1 billion, up from the existing US$800 million, the State Administration of Foreign Exchange said in draft rules published on its Website yesterday. The QFII funds can invest in Chinese shares, treasuries, convertible and corporate bonds.

"The move can encourage more foreign capital into China's equity market and boost investors' confidence, especially when the market suffers sharp fluctuations," said Fred Hu, managing director at Goldman Sachs Asia Pacific.

SAFE said the revised rules are beneficial in helping attract and facilitating investments.

"The revised rules are aimed at attracting medium- and long-term investments, facilitating investment operations and risk control, and improving management and monitoring of capital transactions," SAFE said.

However, the overall US$30 billion investment quota won't be changed because less than US$15 billion of the amount has been used so far, said a SAFE official.

"The news will likely give a temporary boost to the stock market next week when China is also set to unveil improved economic data for August," said Wu Ke, a Zhongtian Investment Consulting Co analyst. "But since the overall quota is not changed, such a move won't by itself support an across-the-board rebound."

Under the draft rules, the lockup period for medium- and long-term investors will be cut to three months from one year. "The adjustment of the QFII scheme reflected that the equity market became more open and that the government is set to monitor foreign funds in a more regulated way," said Jiang Jianrong, an analyst at Shenyin & Wanguo Securities Co.


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