The attitudes toward China's qualified foreign institutional investor system vary geographically. The foreign institution's access to the Chinese capital market is subject to the established investment strategies in different regions.

The major strategies in China for most European institutions involve the participation in mutual funds, the joint-venture fund management companies or simply sitting on the sidelines.

Their entrance into the Chinese market will have to be endorsed by the investment decision-making committees, a process whose duration is subject to familiarity with the market. Some British representatives, based in Beijing, said that the QFII will undergo a long process of feasibility study.

Their U.S. counterparts are adopting a wait-and-see attitude as they do not see the potential of profit making. What the U.S. institutions are paying attention to is the development of the sales of China's non-tradable state-owned shares.

Some Japanese companies are taking a different view. They cite an unfamiliarity with the stock market, which they say is a tiny part of the global market.

There are two major reasons that may explain why they would not come in soon.

On one hand, as little is known about the Chinese capital market, the understanding by foreign investors of the A-share market comes under the influence of their research results for Class-H shares, red-chip shares or even the B-share market.

Based on the comparison of the average price-to-earnings ratio of A shares with that of H shares or red-chip shares, the conclusion to be drawn is that Class-A shares do not hold investment values because of their high price-to-earnings ratio. On the other hand, foreign investors deem the QFII rule to be "an opportunity of investment" but not "an opportunity of making money."

Most foreign investors have already reached a consensus on the Chinese market: a P-E ratio of 30 to 40 for A shares reflects overvaluation and foresees little room for further upturn. Also, the Chinese listed companies are grudging about dividend payout. So, what's the point of investing in a market that yields neither capital gains nor dividend payout?

Zuo Xiaolei is the chief economist at China Galaxy Securities Co. Her report was based on feedback received from Beijing representative offices of overseas investment institutions.