China raises quota for foreign investment, ending 13-month pause

[BEIJING] China has increased the amount of money that approved investors can put into overseas assets for the first time since May last year as its relaxes its control over capital outflows.

The State Administration of Foreign Exchange raised the foreign-exchange quota for qualified domestic institutional investors (QDII) to US$170.9 billion at the end of June, from US$167.8 billion, according to the agency’s website. The increase, which the markets had been expecting, comes as depreciation pressure on the yuan has eased due to the weaker US dollar, and demand for foreign assets such as US stocks has cooled.

The QDII programme allows local institutional investors who meet certain conditions to buy foreign securities, bonds, and commodities within their prescribed limit.

Interest from Chinese investors for overseas assets had surged over the past two years as the local equity market slumped. That demand led to huge distortions in the prices of exchange-traded funds (ETFs) tracking global gauges such as the S&P 500 Index, as demand outpaced the quota-constrained supply.

The additional quota allotted to securities firms and fund houses increased by US$2.1 billion, while that for banks rose by US$660 million, and that for insurance companies climbed by US$300 million.

Chinese investors’ demand for US stocks has eased in recent months as increased government stimulus, the rally fuelled by the Deepseek artificial-intelligence app, and the surge in Hong Kong equities created opportunities closer to home. The amount of money mainland investors have ploughed into Hong Kong shares has climbed to HK$731 billion (S$118 billion) this year, nearing the 2024 record of HK$808 billion.

The average premium on ETFs in which qualified investors can place funds was 0.3 per cent on Monday, compared with an average of 1.6 per cent over the previous 52 weeks, based on data compiled by Bloomberg. The premium jumped as high as 3 per cent early last year, leading to trading halts and the imposition of purchasing limits. BLOOMBERG