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To: maceng2 who wrote (39412)	10/9/2003 9:12:38 PM
From: elmatador	Respond to of 74559

China puts limits on foreign investors By Alexandra Harney in Hong Kong and Richard McGregor in Shanghai Published: October 9 2003 21:54 \| Last Updated: October 9 2003 21:54 China has stalled the expansion of a scheme to attract foreign investment funds into its domestic capital markets because of concerns about its use by investment banks for currency speculation. The central government has significantly restricted the amounts investment banks can put into the market on behalf of clients over the past month, approving substantially lower tranches than they had applied for. HSBC received approval for only half of the $100m (€85m, £60m) it applied for permission to invest, while an informal request from UBS to increase its $300m quota was also rejected. ING, which was hoping for $100m, is not expected to receive approval for the full amount. Citigroup is also believed to have applied for another tranche. It declined to comment on the scheme. "They have started to limit the amount people can invest, and they may even start limiting the number of licences they give out," said one banker involved in the scheme, known as the Qualified Foreign Institutional Investor (QFII) programme. The tough line on currency inflows has been enforced by the State Administration of Foreign Exchange (Safe), which must approve all official flows of money in and out of China. Safe's policy has taken precedence over the more liberal view of the China Securities Regulatory Commission, which believes that the overseas funds, and foreign fund managers, can only benefit the local market. Chinese officials have told bankers they are concerned that QFII has become a conduit for "hot money" rather than a vehicle for improving the standard of its capital markets. "Their concern is that a lot of QFII awards to date are just to brokers that are parking cash in China in hopes that the renminbi will be allowed to strengthen," said another banker. Some Chinese officials have also expressed concern that certain investors have been putting their money into bonds rather than shares - a sign that they are primarily interested in gaining exposure to the renminbi, which many analysts expect to appreciate. QFII, which was launched late last year, allows foreign investors to participate in initial public offerings, share placements, and the A-share market. To date, nine investment banks have received approval for a licence to invest on behalf of their clients. The total amount of funds approved is between $800m and $900m, equal to about a single's day turnover on the Shanghai and Shenzhen stock markets. Initial enthusiasm for QFII among foreign banks has also waned recently, as they have refocused on the rules that ban the repatriation of funds in the first year, and restrict them to only 20 per cent per quarter from the second year. A-shares' high valuations and the paucity of international-standard research also frustrate some investors. Despite the difficulties, most banks are planning to ask for permission to renew their quotas. "We hope we will not fall victim to the current climate," said Nicole Yuen, head of China equities at UBS.