China has allowed five foreign banks to participate in the trading of its stock-index futures. These banks are the first batch of qualified foreign institutional investors (QFIIs) permitted to trade in the China Financial Futures Exchange after a 20-month long wait.
The QFIIs include Credit Suisse Group (CS), Morgan Stanley (MS), UBS AG (UBS) and BNP Paribas SA (BNPQY). Floated in 2002, the Qualified Foreign Institutional Investors program is a way through which foreign investors can directly invest in the Chinese financial markets. After obtaining a trade license, an investment quota is handed over to each QFII by China's foreign-currency supervisory body.
Over the last couple of years, the Chinese government has increased its efforts to divert funds from overseas investors into the country's capital markets. This is a part of its strategy to strengthen local financial markets and enhance the performance.
In order to pump more funds in to the economy, last year, Beijing elevated the investment quota, reduced minimum qualifications for aspiring investors and lifted restrictions on the investments. Chinese authorities are now speeding up the approval process as well. In 2012, the government handed out 72 new QFII licenses, resulting in an aggregate $15.8 billion worth of quotas compared with 29 licenses and $1.92 billion worth of quotas in 2011.
By allowing foreign investment into the Chinese markets, the government seems to have realized the importance of foreign funds, especially when the home economy is not delivering the way it used to. Owing to the introduction of capital to the wavering economy, chances of stabilization and subsequent growth have increased largely, providing China new opportunities to flourish.
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