In a step that liberalizes and simplifies foreign access to China’s capital markets, State Administration of Foreign Exchange (SAFE) announced changes to the Qualified Foreign Institutional Investor (QFII) scheme on February 4. The rules bring it closer to the newer and less restrictive, offshore renminbi equivalent RQFII.

The new rules change the way the QFII quota are allocated. In place of the earlier approval system, SAFE introduces a registration approach, in which licenced foreign institutional investors will have quota assigned based on the percentage of their assets under management, subject to the maximum of US$5 billion.

Further changes include scrapping the requirement that the quota be executed within six months from allocation and allowing QFII mutual funds daily subscriptions and redemptions, not weekly as before. The redemptions lock-up period for repatriation has also been reduced to three months from one year. The limit of 20% of assets allowed to be repatriated remains in place.

This move is consistent with Chinese regulators’ long-term strategy of gradual opening up the country’s capital markets. Harmonization of QFII and RQFII, and perhaps merging the two down the road, has been expected by industry experts.

The announcement comes at the time when China’s financial regulators are striving to maintain global markets’ confidence in their ability to steer the country’s economy through structural reforms while fending off economic slowdown and stock market volatility.

The move is expected to play a role in the process of inclusion of China A shares in global equity indices. Such a move would channel substantial institutional capital into China’s stock market, which today is dominated by retail investors. This inflow would likely lift and stabilize the market.

“We recognize that this is a major step in the right direction on market access and capital repatriation,” says Sudir Raju, managing director, exchange traded products at FTSE Russell.

The index provider, as well as its two major competitors MSCI and S&P Dow Jones have all declined to include A shares in their global indices outright in 2015, citing as the main reason restrictions on the capital movement and accessibility of the shares. While the announced changes in QFII by themselves aren’t likely to make a difference, the move will be welcomed by the market participants.