China is said to be considering a proposal to allow qualified foreign institutional investors (QFIIs) to trade in a wider range of financial products other than yuan-denominated A shares and bonds.

Foreign investors may also be allowed to subscribe to initial public offerings; and buy into rights and other new share issues, the China Securities Journal quoted unidentified sources as saying yesterday.

That would put foreign institutional investors on a more equal footing with domestic institutional investors and make the QFII plan more appealing, analysts said.

A spokeswoman for the China Securities Regulatory Commission (CSRC) declined to comment. But insiders said such a move is very likely and in compliance with existing rules.

China issued detailed regulations on the QFII scheme last November, which went into effect in December, as a transitional measure to open the securities market to foreign investors when the yuan is still not fully convertible under the capital account.

The rules stipulate that qualified foreign investors can invest in A shares listed in Shanghai and Shenzhen, treasury and corporate bonds and other financial tools approved by the Chinese authorities. But they did not specifically forbid QFIIs from investing in other financial products.

So far, China has approved five domestic banks - the Big Four and the Bank of Communications, and three foreign banks - HSBC, Standard Chartered and Citibank, to be QFII custodians, with more waiting for licences.

The custodians would enable QFIIs to set up special accounts and remit money to invest in the now domestic-only A shares and bonds.

A number of foreign institutions are seeking QFII status, including Deutsche Bank, UBS Warburg, Goldman Sachs and Nomura. Some have already handed in their applications to CSRC - approval would take a few months - and are finalizing deals with the custodian banks.

Nate Emerson, head of Greater China equities at Deutsche Securities, the securities arm of Deutsche Bank group, was quoted as saying that the company would remit US$50 million in the first three months and increase the investment later on, depending on the market conditions.

According to the rules, each QFII will be allowed to apply for an investment range of US$50 million-800 million.

The QFIIs will be interested in steady A-share companies that are managed well and have a good growth potential, but such firms account for only a small portion of domestic-listed companies, said Chen Zhengrong, a securities analyst in Beijing.

A report by UBS Warburg said that foreign investors should focus on Chinese companies, such as those with a natural monopoly, like airports, ports and highways; labour-intensive firms, such as textiles; famous national brands, like TCL and Tsingtao Beer; natural-resource companies, such as coal mining; and tourism.