Risk-averse institutions such as pension and insurance funds have yet to rush into Chinese securities because they believe risks are higher than they can shoulder, industry insiders said.

"China's market is more volatile and less predictable compared with Western bourses," said a vice chairman at a US-based medium-sized securities firm.

"That's why investors with long-term strategies won't plunge in at the initial stage."

The CSRC also cut the period under which foreign investors can't transfer their capital back home from a year to three months for pension funds, insurers and long-term mutual funds.

Chinese authorities should consider further lowering limits over capital flows to attract this type of money, the CSRC said.

Regulators should also support foreign securities firms and mutual-fund managers, which have partnerships with domestic players, to join the QFII program, according to the statement.

"These overseas financial companies, usually optimist about China's economic growth, will be ideal QFII candidates."

Mutual funds operated by foreign institutions investing in yuan securities grew 57 percent in size in the last quarter of 2006 to US$3.77 billion, according to regulatory data.

Their average return on investment reached 20.5 percent in December, outperforming a 17.9 percent gain for domestic equity-invested funds, according to Lipper, a Reuters fund-research unit.

"With China's sustained economic growth and improved corporate earnings, the local market will surely occupy a position in investors' global portfolios," said Li Zhi, a Hualin Securities Co analyst.

"In addition, the rebounding of the Chinese market has already brought foreign investors handsome gains and will continue to do so."

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