China takes aim at QFII yuan revaluation speculation
Reuters, 05.28.04, 11:53 PM ET
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SHANGHAI, May 29 (Reuters) - China will take measures to stop foreign investors from speculating on a revaluation of the Chinese currency by using a scheme that admits them into the country's stock and bond markets, state media said on Saturday.
China has so far given permission to 12 international financial institutions to invest $1.7 billion under the Qualified Foreign Institutional Investor (QFII) scheme. Three more firms are awaiting their investment quotas.
"If we find they keep their money at banks for extended periods to speculate on the exchange rate and interest rate, instead of investing in the domestic securities market, we...may ask them to leave the market," a State Administration of Foreign Exchange spokesman was quoted as saying.
The interview with the unnamed official was carried in all the official securities papers.
In February ING Bank forfeited half its allocated $100 million investment quota as it was not utilised in time, the first time an institution had failed to do so under the scheme.
Analysts say speculation of a yuan revaluation had fuelled inflows of speculative hot money betting on a possible yuan revaluation, which Beijing has resisted despite foreign pressure.
There has also been speculation that China will raise interest rates for the first time in nine years to tame resurgent inflation and cool an economy which grew 9.8 percent in the year through the first quarter.
Launched in 2002, QFII offered foreign investors the option to buy directly into a wide range of mainland-listed companies.
Before QFII, foreign investors were confined to a tiny, moribund hard-currency B-share markets and were barred from the main, yuan-denominated A-share markets.
The institutions approved to trade A shares in more than 1,300 companies, as well as treasuries and corporate bonds include Credit Suisse First Boston (nyse: CSR - news - people) and UBS AG .
Earlier this month London-based Standard Chartered became the latest to win approval to invest under the scheme, after the bank's <2888.HK> Hong Kong unit had earlier secured the nod from the China Securities Regulatory Commission to join up.
