The mainland's foreign-exchange regulators are revising control over investments by Qualified Foreign Institutional Investors (QFII) in a bid to strengthen the mainland financial market and pave the way for a convertible renminbi, analysts say.

The amended rules, which will relax the time limits for QFIIs to transfer funds in and out of the mianland, are expected to bring some vigor to the A-share market.

"In order to suit the new features that emerge during the development of the QFII program, we have drafted new foreign exchange rules and will try to implement them as soon as possible," Li Dongrong, vice-head of the State Administration of Foreign Exchange (SAFE), is quoted as saying at a financial derivative forum in Shanghai.

The new rules will mainly be aimed at encouraging foreign institutions to make medium- and long-term investments in the mainland's capital market. And the time limit for QFIIs to move capital into the mainland, and to remit out, will be relaxed, Li said.

"The updated rules for QFIIs will stimulate the A-share market with some 'hot money'. Shanghai stocks have been through a big correction in the last month and are in need of stimulation," said Dick Lee, a corporate finance officer at Phillip Securities.

"However, there are still many uncertainties in the outlook of the global market. Foreign investors would have to adopt a wait-and-see attitude before they launch any investment in the mainland's securities market, and the 'hot money' will be a short-lived sparkle," Lee said.

The benchmark Shanghai Composite Index rose 0.4 percent yesterday to 3,612.54 points, led by brokerages and rice companies, but the gains will likely be limited by worries over a sharp increase in the number of shares in the market due to the pending expiration of lockup periods for institutional holdings, dealers said.

The new rules will also allow QFIIs to open foreign-exchange accounts, but they will not be allowed to exchange their foreign-currency holdings for yuan until they start to make investments, Li said. The existing rules require them to open such accounts through custodial banks.

The central government has amended the QFII program several times since it was first established in 2002.

"It is obvious that the monetary authorities are paving the way for a free and convertible renminbi," said Tony Tang, an analyst at China Everbright Research Ltd.

The amendments to the QFII rules aim to attract long-term capital and to enhance regulations of investments on the mainland.

The mainland launched the QFII program in 2002 in a move to open to the outside world its stock market, which is off-limits to overseas investors, except QFIIs.

The approval of new QFII investments has been suspended since February 2007 as a measure by the government to prevent the rocketing influx of foreign direct investments (FDI).

But the suspension may be lifted soon.

Hu Xiaolian, director of SAFE and deputy governor of the People's Bank of China, said last month that the government will increase the quota of QFII.

(HK Edition 04/09/2008 page3)