China market's gradual opening credit positive for foreign asset managers: Moody's

BEIJING -- China's new rules that will further relax the quota allocation and foreign exchange control is credit positive for foreign asset managers, Moody's said in a report on Friday.

Earlier this month, the State Administration of Foreign Exchange of China announced that it will give licensed foreign institutional investors -- those participating in the Qualified Foreign Institutional Investors (QFII) program -- more flexibility to invest in onshore investment products.

Following the change, the quota allocation process, which determines how much any given foreign investor can invest directly in Chinese assets, is simpler and more transparent, and the quota limits have been relaxed.

This regulatory liberalization is credit positive for QFII-licensed foreign asset managers, such as BlackRock Asset Management and UBS Global Asset Management, as they will enjoy more flexibility in the way they manage their cross-border investments, Moody's said.

This additional flexibility will, over time, favor asset inflows from foreign institutional investors, whose current investments in Chinese capital markets remain marginal, Moody's said.

The rule changes have removed some of the barriers to redemption and repatriation of funds, which in turn will lead to higher liquidity, Moody's added.

Since December 2002, when the QFII program was launched with a total quota of $4 billion, China has simplified and relaxed access to the QFII scheme, allowing more foreign institutions to invest a growing amount of assets.