China to let in more foreign investment By Jamil Anderlini April 4, 2012 -- Updated 0239 GMT (1039 HKT) Prime Minister Wen Jiabao endorsed bolder financial reforms during a speech on Chinese radio. International fund managers allowed to invest total of $80 billion in China's onshore capital markets Will allow global financial institutions to play more active role in China's largely closed domestic equity markets Premier Wen Jiabao endorsed bolder reforms such as the need to "smash the monopoly" of state-owned banks Beijing (Financial Times) -- China has almost tripled the amount of money foreign institutions can invest in its capital markets, in the latest move aimed at loosening strict capital controls and internationalizing the renminbi. The China Securities Regulatory Commission announced on Tuesday that international fund managers would be allowed to invest a combined total of $80 billion in China's onshore capital markets -- up from the previous limit of $30 billion -- in an expansion of the so-called qualified foreign institutional investor (QFII) scheme. Beijing also increased the total amount of renminbi that foreign investors can raise in Hong Kong for investment back on the mainland, from Rmb20 billion ($3.2 billion) to Rmb70 billion. Together the moves will allow global financial institutions to play a more active role in China's largely closed domestic equity markets and breathe life into a market that was one of the world's worst performing last year. Also on Tuesday, China's premier Wen Jiabao endorsed bolder financial reforms when he declared that the government intended to "smash the monopoly" of the country's big state-owned banks, for whom he said profits come "too easily." His comments, made on Chinese radio, appeared aimed at advancing reforms that would remove the current cap on deposit rates and a floor on lending rates that guarantee banks a healthy profit margin. The reform is also a necessary step towards full convertibility. When China made the renminbi convertible under the current account in 1996, it set a timetable of 10 years for full convertibility on the capital account. But Beijing has maintained tight restrictions on cross-border capital flows in order to manage its exchange rate and protect its nascent financial system from external shocks. This has led to large financial imbalances and the build-up of the world's largest foreign exchange reserves. The CSRC described the higher quotas as an important part of "opening [China's] capital markets to the outside and actively exploring the realization of a freely convertible renminbi on the capital account." Just within the last week, Beijing has said it is considering a pilot program that would formally allow citizens in the wealthy eastern city of Wenzhou to invest abroad directly, another small but important step towards liberalizing the capital account. On Tuesday, Dai Xianglong, China's former central bank governor and the man now responsible for managing the country's biggest pension fund, said China should lift capital controls more quickly. "China should speed up renminbi convertibility on the capital account to make it become a currency that can be used for the purpose of investment," Mr Dai said at a conference in southern China. One crucial precondition for full convertibility of the currency will be liberalization of government-capped interest rates in China, something policymakers have been debating fiercely over the last year. Individuals in China are not allowed to buy or sell more than $50,000 worth of renminbi per year and foreign individuals are completely banned from investing directly in China's equity markets. Although companies are able to convert renminbi for use in trade and direct investment they are not allowed to invest in capital markets outside the QFII and RQFII schemes. Under the QFII scheme, which was launched in 2002 but has expanded very slowly since then, a total of 158 institutions from 23 countries had been approved to invest a total of $24.6 billion by the end of March. Despite the fact that China's benchmark Shanghai Composite index has fallen 62% since its peak in October 2007, foreign institutions have grown their approved investments from $24.6 billion to a combined total of $42.2 billion and they now account for about 1% of the total free-float market capitalisation in China. 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