Freer foreign capital flow vital for integration of A shares into global index

Current quotas for overseas investors need to be raised, experts suggest

Industry experts have warned that integrating China's A-share market into the global investment index system is dependent on the freer flow of larger amounts of foreign capital in and out of the country.

Responding to Friday's announcement that the China Securities Regulatory Commission was in talks with international index compilers to join the global investment system, market watchers said it was vital that current investment quotas for its Qualified Foreign Institutional Investor, or QFII, and Renminbi Foreign Institutional Investor, or RQFII, schemes, be raised.

According to an official from the CSRC on Monday, the integration proposal is still at the discussion stage, and the main issues yet to be resolved focus on foreign exchange controls and possible fiscal taxation adjustments.

But Hong Hao, managing director and chief strategist at the BOCOM International Holdings Co Ltd, an investment banking and securities company in Hong Kong, was blunt in his assessment of whether global integration of the A-share system was possible.

"Before the authorities can sort out restrictions on cross-border capital flows and taxes on international funds, a multi-year endeavor, such index change remains a pipe dream," he told China Daily.

One of CSRC's potential cooperative targets is with MSCI Inc, the leading US provider of investment decision support tools to clients around the world, which is a public company listed on the New York Stock Exchange.

"If the MSCI index anchors China's A shares, over a trillion yuan ($161.7 billion) worth of fund could roll in the mainland stock market," said Hong.

MSCI has more than 7,500 clients, mostly global pension funds and boutique hedge funds, and the joining of Chinese mainland shares could attract large inflows of exchange traded funds, and bring liquidity to the market.