Pennsylvania Trust

Shift in Policy Should Further Open China To The Global Markets

Shift in Policy Should Further Open China To The Global Markets

Global investment managers no longer need to obtain quotas to buy Chinese stocks and bonds through the Qualified Foreign Institutional Investor (QFII) program. On Tuesday, China’s foreign exchange agency removed the $300 billion overall cap on overseas purchases. Mainly covered as a symbolic gesture (nearly 2/3 of the quota remains unused), this should be viewed as a positive step in trade negotiations. Scrapping the investment quota is an intentional shift in policy makers’ efforts to open up China’s financial system to the world. This should also be applauded by markets and specifically index providers who have been critical toward QFII which have restricted international investment.

In addition, it is another step by the Chinese to increase use of the yuan in international transactions as they seek out more foreign capital to balance payments.

While this was little mentioned as a part of the trade negotiations, it should be viewed as a positive step to increasing transparency.

 


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