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Stock market faces opportunity for fundamental change

By Zhang Ran (China Daily)
Updated: 2006-10-20 08:47
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The securities regulator has taken increasing steps recently to allow more foreign players to enter the A-share market. This is a move that will attract more funds to the securities market on the eve of the Industrial and Commercial Bank of China's (ICBC) listing on October 27 while further opening up China's financial market in accordance with its World Trade Organization commitment.

The China Securities Regulatory Commission (CSRC) last month approved as many as five qualified foreign institutional investors, or QFII the highest monthly approval for 2006.
In the past three months, the CSRC approved 10 new QFIIs and the number has been rapidly increasing after the approval of six QFIIs in the first six months of the year.

Meanwhile, the combined investment QFII quotas broke US$8 billion after the State Administration of Foreign Exchange (SAFE) said on October 9 it had granted Credit Suisse a US$200 million quota.

The SAFE data also shows that the market saw an inflow of US$15.6 billion from overseas investment in the same period, up 108 per cent year-on-year. All this reveals China has quickened its pace in introducing foreign institutional investors into the A-share market after it successfully conducted a securities reform to convert State non-tradable shares into tradable ones.

"In fact, it would be 'short-sighted' to link the introduction of more QFIIs with fund shortage pressure on the debut of ICBC shares," said Zhao Jianxing, an analyst with Shenzhen-based China Merchants Securities. "It is high time for A shares to be linked into a worldwide investment portfolio through the introduction of more QFIIs."

Though the flow of more QFII funds into the A-share market will surely help the ICBC's listing, it is not a short-term move taken under pressure, but part of a long-term strategy to speed up the opening of the financial market to foreign investors.

The CSRC issued a new rule in August, lowering the threshold for long-term investors to encourage more QFIIs to enter China's capital market.

Under the new rule, the capital lock-up period for overseas pension funds, insurance companies and mutual funds has been cut to three months from the original one-year lock-up period.

The securities assets requirement for potential QFIIs meanwhile was reduced from US$10 billion to US$5 billion.

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