China to increase allowable foreign investment quota

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SHANGHAI, Dec. 10 – China’s State Administration of Foreign Exchange will increase the quota for allowable foreign trade investment in RMB-denominated stocks and bonds to US$30 billion, it is reporting on its website. No implementation date was specified in the announcement. The move is aimed at expanding mainland markets, reduce volatility and propel the value of the RMB upwards.

Under the qualified foreign institutional investor program, or QFII, forty-nine foreign institutional investors now do business in the Chinese stock market with assets valued at US$27 billion.

The news comes prior to U.S. Treasury Secretary Henry Paulson’s scheduled visit to the country Dec. 12 for high-level economic meetings between China and the United States.

Last May, during a Strategic Economic Dialogue between the two countries, China made a pledge to address the currency issue. The United States has long been pressuring China to allow significant gains on its currency that it believes is undervalued and is causing the widening trade surplus.

The State Administration of Foreign Exchange also announced plans to expand the coverage of its qualified domestic institutional investor program, or QDII, for Chinese brokerages.