June 25, 2012 9:38 am

Qatar seeks $5bn Chinese investment quota

General Economy & Financial Industry In Qatari Capital doha©Bloomberg

Qatar’s sovereign wealth fund is seeking approval to invest up to $5bn in Chinese stocks and bonds, which would make it the biggest foreign investor in China’s capital markets.

Beijing keeps a tight grip on capital flows across its borders, and foreign institutions that are seeking to buy stocks or bonds must obtain a special quota. The upper limit is currently set at $1bn, which would thwart Qatar’s plans. But Chinese regulators are considering lifting that cap in order to attract more foreign investment and to further their strategy of gradually opening the country’s capital account.

Reports of the Qatari application were touted in Chinese state media on Monday as a sign of foreign investors’ confidence in the Chinese economy.

Mohammed Bin Saleh al-Sada, Qatar’s energy and industry minister, was quoted by the Xinhua news agency as saying the investment decision reflected faith in China’s long-term growth potential.

The Chinese Securities Journal, an official financial newspaper, said other institutions already holding investment quotas under the qualified foreign institutional investor programme had applied in recent months to increase their allocations by a total of $12.5bn. Temasek, Singapore’s state-owned investment company, is among those that have asked for a bigger quota.

In April, China said foreign investors would be allowed to invest a total of $80bn in the country’s capital markets, up from a previous limit of $30bn. Analysts have noted that this increase, while substantial, just manages to keep pace with the growth of China’s capital markets. If the quota is fully subscribed, foreign investors will still account for only about 1 per cent of total free-float market capitalisation in China.

Along with increasing the quota, the China Securities Regulatory Commission has tried to make it easier for foreigners to invest in the country’s markets. Last week it announced that international fund managers with as little as $500m under management and two years’ operating experience could apply for investment licences. That was a significant relaxation of the previous threshold, which required institutions to have $5bn under management and a five-year track record.

The CSRC has also vowed to simplify the application procedures for international investors, allowing them to submit applications online and promising to conduct speedy reviews.

If the securities regulator approves the Qatari application, Qatar will then need permission from the Chinese foreign exchange administrator to actually bring the money into the country, adding another layer of bureaucracy to the process.

The Qatar Investment Authority, which says it has more than $100bn in assets, does not yet possess a licence for investing in Chinese markets. Mr al-Sada was in Beijing for a China-Qatar investment and co-operation meeting.

He was quoted by Chinese media as saying that Qatar would use its revenues from selling liquefied gas to China to invest in the country’s capital markets, focusing on equities but also putting some money into bonds.

The securities regulator said it would “actively assist” Qatar in obtaining approval for its investment quota.

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