China allows greater foreign investment

In China on Monday officials announced that the amount of foreign money allowed to be invested in the stock market will be increased to a total of $10 billion. No time frame for the introduction of the new limit was announced.

Currently, $4 billion dollars of foreign investment is allowed by the terms of the Qualified Foreign Institutional Investors program. News of the change was expected, but the announcement nonetheless sent Shanghai’s composite index 0.6 percent lower on Monday, to an 8-year low.

The index has lost 20 percent so far this year, after having lost 15 percent last year. The new allowable foreign investment levels are an attempt to turn this losing trend around. In the first quarter of 2005, only one percent of all the money raised by companies by China came from the sale of stocks and bonds.

One analyst, however, said that while the increase of allowable investment by foreigners is a good thing for the market, it does not necessarily mean that foreign investors will be interested in putting more money into the Chinese markets.

In addition to the announcement of higher allowable foreign investment levels, the China Securities Regulatory Commission announced that it would suspend issuance of IPOs for the present time to lessen concerns about of flood of new issues on the market.

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