China To Loosen Foreign Capital Flow Rules

China’s central bank plans to loosen rules on when foreign investors can bring money in and out of the country, according to people with direct knowledge of the matter.

The rule changes would apply to funds under the Qualified Foreign Institutional Investor scheme, which grants quotas for money brought into China for investment in domestic stocks and bonds, said the people, who asked not to be identified as the plans have yet to be announced. Lock-up periods for the withdrawal of QFII funds from China would be relaxed and institutions would also be given more latitude over when they can bring money into the country, they said.

Such changes would suggest that turmoil in China’s stock market and the yuan’s exchange rate haven’t derailed plans by the People’s Bank of China to further open the nation’s capital account. The people who spoke about the plans to loosen controls on QFII funds described them as part of China’s efforts to further open its capital markets.

Under the planned changes, QFII funds would be allowed to withdraw money from China on a daily basis, one of the people said. They are currently subject to lock-ups of either one week or one month, depending on the type of quota.

Institutions would also be allowed to bring in portions of their QFII quotas at different times, the person said. They are currently given specific QFII quotas and only allowed to bring in an amount equal to that quota in a single transaction.

These changes would bring rules for the QFII scheme in line with those for the Renminbi Qualified Foreign Institutional Investor scheme, which allows institutions to raise yuan overseas for investment in China, one person said. Announcement of the changes is pending final approval of the plan by senior Chinese leaders, they said.

Bloomberg

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