China recently doubled the quota allowed for foreign institutional investors to purchase A-shares in Chinese mainland companies. The State Administration of Foreign Exchange raised the limit to US$300 billion for qualified foreign institutional investors.
A-shares were previously only available to Chinese citizens. However, since 2003, the Qualified Foreign Institutional Investor program allotted a quota to certain foreign institutions to purchase A-shares in China's capital market.
A-shares are attractive to foreign institutions that plan to invest for five years or longer and are optimistic about China’s economy in the medium to long term, read an editorial on Shanghai-based news portal yicai.com.
Foreign institutional investors have a low turnover rate of A-shares and prefer value investing, cultivating medium- to long-term investors along the way.
Domestic investors are wary of the under-performing capital market, the portal noted. As investors’ confidence and expectations affect the stock market, it is necessary to shore up their confidence. Foreign capital inflows will play an important part in that.
Greater opening-up helps create a push for more reforms. For instance, late last year the Shanghai and Shenzhen stock exchanges released new, more stringent guidelines in part to allay foreign investors’ concerns about arbitrary suspensions of A-share trading.