Previously, the PBoC blocked foreign central banks and SWFs from investing more than $1 billion each in onshore Chinese assets through the Qualified Foreign Institutional Investor (QFII) scheme launched in 2002. On Sunday, that $1 billion cap on sovereign-level investment was lifted by the PBoC’s State Administration of Foreign Exchange.
The move to lift the cap comes at a moment of seeming stability in China’s economic planning ahead of 2013, as PBoC officials begin to see the central government’s drive for national infrastructure development paying dividends.
Conclusions from a Chinese Communist Party central economic work conference over the weekend show that the central government is not planning on deviating next year from those infrastructure growth plans.
“There is no evident pressure for the [PBoC] to take aggressive easing policy,” says PBoC financial research institute head Jin Zhongxia. “We will not see a big inflation rebound in 2013.”
Meanwhile, Beijing’s leadership circle, including incoming premier Li Keqiang, said at the end of the conference on Sunday that they want to continue to drive the country’s economy toward boosting imports while speeding the integration of rural migrants into urban areas in an effort to boost domestic consumption, according to state news agency Xinhua.
However, achieving those goals will undoubtedly require a continued steady flow of foreign investment into China, and the lifting of the $1 billion cap on sovereign-level investment signals a continuation of the drive for RMB internationalization to fund the growth, says HSBC head of Asian FX strategy Paul Mackel.
Mackel warns, though, that merely lifting the $1 billion cap might not lead directly to more QFII inflows in the near term.
Only five sovereign-level investors – GIC, Temasek, the SNB, the HKMA and Qatar – have hit their $1 billion investment ceiling under the QFII programme, according to PBoC data.
This is because PBoC approvals for investments by foreign central banks and SWFs over $1 billion might only be applied for one year after the previous successful application for participation in the QFII scheme.
Also, only $36 billion of the current $80 billion ceiling for total QFII programme utilization has been accessed so far, which Mackel says suggests that the PBoC scheme is not yet as successful as central government officials hoped it would be.
“That said, we still look as these changes as positive for the RMB, even if the initial flow effects are less noticeable,” says Mackel.