There is insufficient evidence to show that foreign capital is aggressively underselling stocks or taking short positions in China's A-share market, a spokesman for the China Securities Regulatory Commission said on Friday.[Hong Kong Company Registration Guide]

As the capital account has not yet been completely opened, overseas funds can only invest in the mainland securities market under the Qualified Foreign Institutional Investors, or QFII, plan, which is supervised by the State Administration of Foreign Exchange, he said.

"There is no signal of any illegal inflows or outflows of foreign capital in the A-share market," the CSRC official said.

He highlighted that the economic growth rate is still within the "reasonable range", and is expected to remain stable for a long period.

"We have no reason to lose confidence on the A-share market," he said.

Wang Tao, chief economist at UBS AG, said that despite the weakness in the first quarter, GDP growth is estimated at 8 percent for the whole year, with a retail sales and consumption recovery expected in the coming months.

"The strong credit expansion, together with the local governments' urbanization push, should help stimulate fixed-asset investment growth, especially in the infrastructure sector," Wang said.[Businesses Registration]

The Shanghai Composite Index dropped nearly 1 percent on Friday to 2,177.91 points, the week's lowest level, which dragged down the benchmark stock index by 2.63 percent in April.[Hong Kong Company Formation & Registration]

Investors were recently hit with bearish economic outlook data, including the slower GDP growth and the sluggish industrial production situation.

The lower-than-expected 7.7 percent GDP growth rate has led to a forecast-downgrade flurry among foreign institutional investors, including JPMorgan, Nomura and Citibank.

Fitch Ratings, one of the three major global rating agencies, downgraded China's credit rating to A+ from AA- due to potential risks of what it called the "shadow banking system".

Some media reports said that a new round of short selling of Chinese shares has started, which may weigh on the stock market.

However, the CSRC remains sanguine.

"We know that an increasing number of QFII and renminbi-QFII are applying for quotas to enter the mainland capital market, which shows that they still have positive expectations," the CSRC spokesman said.

The director of the fund supervision department of the CSRC said on Friday that a new round of RQFII quota approvals will start soon, to satisfy the growing investment needs of foreign financial institutions.

The total RQFII quota has been expanded to 200 billion yuan ($32 billion).

Meanwhile, the securities watchdog also released a draft amendment of the regulatory policies for fund investments, in line with the upcoming new edition of the Securities Investment Fund Law, which will take effect on June 1.[company registration in Hong Kong, Hong Kong company incorporation]

The CSRC is expected to limit the leverage rate of fund investments and tighten the supervision on trading risks.