The top securities regulator is ready to open the A-share market for Taiwan institutional investors holding offshore renminbi deposits, a senior official of the China Securities Regulatory Commission said on Tuesday. The investment quota for renminbi qualified institutional investors, or RQFIIs, is likely to be 100 billion yuan ($16 billion), according to the commission.

Financial institutions from Taiwan will be able to hold as much as 51 percent, up from 49 percent, of the joint-venture brokerages' shares in Shanghai, Fujian and Shenzhen, said Tong Daochi, head of the international department of the commission, speaking in Taipei. The commission is also considering allowing individual investors from the island to trade A shares on the Shanghai and Shenzhen stock exchanges. The proposal was part of a policy package unveiled by commission Chairman Guo Shuqing during his first official visit to Taiwan which started on Monday.

The Shanghai Composite Index climbed 12.47 or 0.53 percent to 2358.98 at Tuesday's close, the highest since June 1, on news of the proposal. Securities companies saw the largest increase compared with other sectors. China Merchants Securities Co Ltd hit the 10 percent ceiling, for the second day, on Tuesday. Analysts said the internationalization of China's currency needs more offshore markets for support.

So far, the RQFII program only operates in Hong Kong. By the end of December, 24 financial institutions under the program had been approved, with a 67 billion yuan investment quota, according to the State Administration of Foreign Exchange. Individual investors in Taiwan can directly invest in the mainland's dollar-denominated B-share market, and they can also buy yuan-denominated A shares through the qualified foreign institutional investor (QFII) program.

During the 18th National Congress of the Communist Party of China in November, Guo said that an increasing number of Taiwan's asset management companies will be welcomed to play a bigger part in the mainland securities market. "Initial steps, such as underwriting stocks from the mainland, will be carried out in Taiwan," Guo said.

The pilot RQFII program is under the Economic Cooperation Framework Agreement, signed between the two sides of the Taiwan Straits to reduce tariffs and commercial barriers as well as tighten financial relationships, the commission said. Some financial institutions in Taiwan have been granted RQFII licenses, according to the commission. Guosen Securities Co Ltd noted that as investors from Taiwan directly participate in the mainland's capital market, financial ties between both sides are expected to tighten at a faster pace.

A report from the China News Agency said that Taiwan is also planning to ease the requirements for mainland companies issuing initial public offerings in Taiwan Stock Exchange. Earlier this month, Guo looked forward to the likelihood that QFII and RQFII quotas will increase at least nine to 10 times. This will be a huge capital injection into the mainland stock market compared with the current 80 billion yuan quota for QFII and 270 billion yuan for RQFII.

Jing Ulrich, managing director of global markets in China at JPMorgan Chase & Co, predicted that the QFII and RQFII quota expansion will likely speed up this year. She said the QFII program may be ended after five or seven years, when the A-share market can completely open for the investors from all over the world. "Currently, global investors are showing a more optimistic attitude toward China's stock market, as the economic growth is rebounding," said Ulrich.

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China will quicken the opening up of the capital market in 2013, by attracting more foreign investors and facilitating the development of asset management and futures businesses, the country's top securities regulator pledged on Tuesday.

"The investment quota for Qualified Foreign Institutional Investors (QFII) and Renminbi-QFII (RQFII) will continually expand in order to satisfy the growing overseas investment demand," said a statement from the China Securities Regulatory Commission, or CSRC. "The policy to regulate Qualified Domestic Institutional Investors, or QDII, will continue to be improved," it said. The statement came at the end of the annual CSRC work conference, which set the blueprint for 2013. "We will accelerate the pilot program for futures companies launching brokerage businesses overseas, support the development of cross-border exchange traded funds, or ETFs, and bond markets," the statement said.

Guo Shuqing, chairman of the CSRC, said: "The opening should speed up. It is impossible to delay the opening based on the current market situation, or we will suffer incredible losses." He went on to say, “More foreign institutions, including fund management companies and securities business, will be encouraged to launch asset management services on the Chinese mainland, which can help reduce speculative activities from individual investors, and stabilize the market.

A week earlier, Guo indicated in Hong Kong that foreign investors will be welcome to inject funds into the mainland's A-share market. He looked forward to the likelihood that the QFII and RQFII quotas will increase at least nine to 10 times. Xu Jian, director of the Financial Research Center under Nanhua Futures Co Ltd, said: "China's stock market is expected to see a huge injection of foreign investment in the coming months, which may boost the benchmark stock index." In 2012, the Shanghai Composite Index increased by 3.17 percent.

According to the CSRC, the QFIIs had seen a cumulative investment of $37.4 billion as of December, and the quota had been raised to $80 billion last year. The total quota for RQFII that allows foreign investors to use offshore yuan to buy mainland securities is now 270 billion yuan ($43 billion), compared with the initial 20 billion yuan set at the end of 2011.

Xia Yang, director of the securities department at UBS in China, said, “QFIIs may get opportunities to invest in stock index futures this year, and develop fixed-income financial products. The average PE ratio of the mainland stock market is not likely to be influenced by the increasing proportion of QFIIs”, said Xia.

The CSRC statement said that in 2013 it will focus on expanding institutional investors, allowing qualified securities companies, insurance companies and private equities to participate in the wealth management sector. "We will encourage more long-term overseas investors, including pension funds, welfare funds and sovereign funds into the domestic market," it said. Guo also highlighted the need to speed up the innovation of futures products by improving research on iron ore and coal futures.

A pilot trading market of carbon emission rights is being studied. This year, the pilot equity transfer program for non-listed small and medium-sized enterprises, or the new over-the-counter market, will continue to expand, to support the growth of the private sector, the CSRC said. In addition, the commission will put more effort into reforms of the initial public offerings issuance and delisting procedure. "The regulation on intermediaries, such as the underwriters and accounting companies, will be strengthened," the commission said.