Is the Flight of Capital from China Aiding in QFII Approval ?

It seems that the flight of capital from China is putting pressure on government officials to grant more QFII (Qualified Foreign Institutional Investor) program approvals. 

The newly appointed Chairman of the China Securities Regulatory Commission (CSRC) Guo Shuqing said earlier this month that they would speed up approvals under the QFII program. The Chinese government has approved almost US$1 Billion in quotas for foreign institutions this year and in the month of December five foreign institutions were granted QFII status which is scene as a very fast approval rate. The QFII program was launched in 2003 to allow qualified foreigners to purchase Chinese stocks and bonds; the total combined quota for investment is only at 21.6 billion. 

Under the QFII program the CSRC grants licenses to qualified foreign intuitions but foreign exchange regulator SAFE grants the quotas.  

Some analyst believe that a fear of a hard landing in China by local officials has recently sped up the QFII approval process to attract capital into the market as well as produced new rules allowing the Hong Kong subsidiaries of mainland brokerages and fund houses to raise offshore RMB to invest the RQFII program (Renminbi Qualified Foreign Institutional Investor). 

The official program that allows outflows of capital from China; the QDII (Qualified Domestic Institutional Investor) has grown at a rapid pace. QDII quotas have reached US$ 74.9 Billion since the third week of December of this year a US$ 820 Million raise over 2010’s US$ 68.4 Billion.

David Nealis at the China Financial Futures Exchange

There are a variety of reasons for this flight of capital from China, for us foreign investors it is having some positive policy reactions by Beijing, but what risks lay a head for us? It seems like 2012 the Year of the Dragon is going to bring us an exciting year in China.