(Yicai Global) Sept. 28 -- China has further expended the investment scope for qualified overseas investors by adding futures, options and private equity funds, while also streamlining procedures.

The China Securities Regulatory Commission and two other agencies jointly issued a policy on Sept. 25 to expand the investment scope of the Qualified Foreign Institutional Investor and Renminbi Qualified Foreign Institutional Investor programs.

The new guidelines enable access to stocks on the National Equities Exchange and Quotations, a Beijing-based over-the-counter market for tech startups, bond repurchasing, stock exchange margin trading and securities lending. The changes also lower the threshold for foreign-funded institutions and facilitate investment operations, liberalize investment targets.

The move marks a major step in opening up China's capital markets and is expected to entice more mid-to-long-term investors, including hedge funds and alternative investments, Fang Dongming, head of UBS China's Global Financial Markets Department, told Yicai Global.

"Foreign investment circles were excited at the news," the head of a European-funded company said. It was if the managers of private funds and wholly foreign-owned firms struggling to raise funds were "brought back to life at once," he said.

Portfolio Patterning

Expanding the scope of investable target assets, above all the relaxation permitting QFII funds to invest in China-based PE funds, is a move foreign investors welcome, and also one that holds extraordinary significance for their investment positioning in China, the head of an Asian wholly foreign-owned enterprise said.

Overseas institutions can directly invest in foreign PE funds they set up in China through the QFII mechanism after the new policy takes effect, and this will help overcome the difficulty of raising funds in the country, while QFII-related shareholding in the Chinese stock market can be managed by a WFOE team, the above source noted.

Allowing QFIIs to set up WFOE private fund managers in China to provide investment consulting services for their overseas parent companies or affiliates will help foreign investors make fuller use of onshore resources. This is important and good news for foreign asset managers, said Ge Yin, a partner at Han Kun Law Offices, which serves many of them.

"After QFII includes private equity investment funds, it will stimulate a large number of overseas funds to consider investment in the Chinese securities market from a new perspective, bringing overseas institutions and high-net-worth customers to the domestic capital market and private equity funds," UBS's Fang told Yicai Global.

The RQFII program modifies the QFII scheme to allow foreign investment in the mainland via offshore yuan accounts. Participants invest in the same products as QFIIs per the same restrictions.

Editors: Tang Shihua, Ben Armour