China to lower cap on foreign investments in 2016
An official spokesperson from China's Commerce Ministry has confirmed that the government is in the process of lowering the limit on foreign investment for 2016. Foreign direct investment in China during 2015 rose 6.4 percent.
Shen Danyang, a spokesperson at China's Commerce Ministry, said "China will lower threshold for foreign investment this year." In July 2015, seven global asset managers have been given licenses. However, no asset manager has been allocated any specific quota to launch their business operations in China.
Reuters reports that China recorded $1126.3 billion (Yuan781.4 billion) in non-financial foreign direct investment (FDI) in 2015. The FDI in China rose 6.4 percent in 2015 when compared with FDI recorded in 2014. Qualified Domestic Limited Partner (QDLP) scheme was rolled out in 2013 and it allowed hedge funds to mobilize capital from domestic market and can invest overseas.
China has recently announced two outbound investment schemes as part of liberalization exercise to facilitate overseas investment in China. The Chinese government is keen on stopping capital outflows and shore up the renminbi. The capital outflows were at record $1 trillion in 2015. This increased concerns over the Chinese currency Yuan, which was devalued in August 2015.
Financial Times further adds that the unexpected devaluation of Yuan in August and subsequent capital outflows resulted in watering down of schemes driving the renminbi to leave the country. Chinese government has been keeping tabs on schemes that allow foreign investments. For instance, Qualified Domestic Limited Partner scheme is designed to allow foreign asset managers, who sell overseas investment products to wealthy Chinese investors.
Chris Powers, a senior consultant at Z-Ben, said "I think the quota suspension is a result of a broader regulatory push for capital controls. The same rationale can be applied to the QDII2 program, which likely has been suspended due to Safe's reluctance to open additional outbound channels."
Despite the economic slowdown, the FDI in China during 2015 was steady. The FDI barring financial sector rose 6.4 percent to $126.27 billion in 2015, according to Ministry of Commerce (MoC). The services sector continued to witness robust growth as it attracted 61.1 percent to the total FDI in China. The FDI in manufacturing sector on the other hand, was at $39.54 billion accounting for 31.4 percent of the total foreign investment in China while the high technology-driven manufacturing companies witnessed 9.5 percent growth in FDI at $9.41 billion, as reported by China.org.cn.
The State Administration of Foreign Exchange has delayed the launch of updated program for domestic investors. The scheme aims at helping domestic investors to invest equities overseas under Qualified Domestic Institutional Investors 2 Scheme (QDII2). Chinese banking experts say that the suspension of foreign capital is certain, but it'll be part of Safe's effort to monitor capital outflows.