Mofcom and CSRC Announce Eased Requirements for Foreign Strategic Investment in A-Share Market

Mofcom and CSRC Announce Eased Foreign Investment Requirements

Beijing has slashed capital requirements for foreign institutions and companies to buy into China’s listed firms as strategic investors, taking another step towards bolstering investor confidence in the country’s stock market. Investors who own proprietary assets of no less than US$50 million or have assets under management of at least US$300 million will be eligible to make strategic investments in firms traded on mainland China’s stock exchanges from December 2, according to a new rule published by six government agencies including the Ministry of Commerce and the China Securities Regulatory Commission on Friday.

New Capital Requirements for A-Share Investment

• The previous minimum proprietary assets requirement was US$100 million or assets under management of US$500 million.
• This is the first instance where individuals meeting these capital requirements will also be allowed to make strategic investments in A-share firms.

In China, strategic investment refers to acquiring a stake in a company and holding it for a certain period to seek long-term returns. “If more foreign capital is flowing into the market to make long-term investments, local investors will be inspired to increase their holdings of A shares,” said Wang Feng, chairman of Ye Lang Capital, a Shanghai-based financial services group.

Long-term Prospects and Policy Interventions

• The lock-up period for foreign strategic investors has been reduced from three years to 12 months.
• China’s yuan-denominated A-share market has added US$4 trillion in value since September 14, propelled by Beijing’s surprise stimulus blitz.

But the durability of this rebound has been questioned, and traders are eagerly awaiting additional fiscal stimulus measures. Over the past year, China’s securities regulator has taken various steps to drive the market higher, including a reduction in stamp duties and state-directed buying of bank stocks.

Investment Accessibility and Future Outlook

• Only qualified foreign institutional investors can buy mainland-listed shares through the qualified foreign institutional investor (QFII) scheme.
• Overseas institutions and individuals can also trade mainland-listed shares through the Stock Connect programmes that link the mainland and Hong Kong markets, subject to a quota system.