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China raises foreign investment quotas as RMB internationalization continues

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China has raised the limits on the amount of money that foreigners can invest in its capital markets, further loosening restrictions as it moves towards convertibility of the renminbi.

The China Securities Regulatory Commission (CSRC) almost tripled the amount that international fund managers can invest in its onshore capital markets. It raised the limit on the funds that qualified foreign institutional investors can invest from a combined total of $30 billion to $80 billion. The move follows a slump in Chinese equities amid fears over a slowdown in the prodigious growth in China’s economy. In January, the CSCR said China would encourage institutional investors to increase their holdings after the country’s main stock market fell close to a three-year low. Beijing also raised the amount of renminbi that foreign investors can raise in Hong Kong for investment in mainland China. The CSRC expanded its renminbi qualified foreign institutional investors (RQFII) pilot programme by increasing the investment quota from Rmb20 billion ($3.2 billion) to Rmb70 billion. China’s FX regulator launched the RQFII pilot scheme in December to promote the internationalization of the renminbi. While the Chinese authorities seem intent on pushing ahead with the integration of the renminbi into the global financial system, analysts warned it could have implications for the Australian dollar. The Australian dollar has benefited in recent years as a proxy for Chinese growth, given the rampant demand that has been triggered for Australian raw materials by the boom in China’s economy. Now, however, with signs that Australia’s two-speed domestic economy is slowing down, analysts say further moves to internationalize the renminbi could accelerate the recent losses in the Australian dollar. “The Australian dollar will likely remain the weakest currency among the G10,” says Hans Redeker, head of global FX strategy at Morgan Stanley. “China’s decision to increase the quotas for foreign investment in China reduces the need for a proxy renminbi, a role which was filled by the Australian dollar.”