Previously, A-shares traded on the mainland were only available to foreign investors via two quota systems -- the 2003 Qualified Foreign Institutional Investor (QFII) and 2011's Renminbi Qualified Foreign Institutional Investor (RQFII).
"Substantial progress has been made toward the opening of the Chinese equity market to institutional investors," Remy Briand, MSCI managing director, said in a statement Wednesday. The RQFII program now covers 12 countries and regions and the situation with regard to capital gains tax is more clear.
YOUNG AND HOT
The A-share market in China is only about 20 years old; still young in terms of capital mobility, currency convertibility and trading rules. Legal and regulatory systems clearly need to be improved. The MSCI decision will bring better market accessibility and transparency, criteria valued by global index providers.
China must continue to liberalize its capital account and ensure larger QFII and RQFII quotas. The RQFII program now covers 12 countries and regions, and the situation with regard to capital gains tax is more clear. The two programs give foreign investors the right to move money into the capital account to encourage more controllable flows. Overseas institutions have received quotas in excess of 383 billion yuan (62.5 billion U.S. dollars) under the RQFII scheme and 74.5 billion U.S. dollars through QFII.
A better IPO registration system needs to replace current administrative approvals, but on the other hand, the A-share market already has potential that is hard to ignore. It is currently valued at more than 63.3 trillion yuan, making it the world's second largest.
In the past year, the Shanghai Composite Index has climbed 152 percent, outperforming other global benchmark indexes by a large margin. Shenzhen rose 145 percent in the same period.
