(Corrects inflows estimate in paragraph 15 to $66 billion from $6.6 billion)
* FTSE's China inclusion expected to trigger $10 bln passive inflows
* FTSE Russell points to improved access for global investors
* MSCI considering boosting A-share weighting in its benchmarks
By Samuel Shen and Noel Randewich
SHANGHAI/SAN FRANCISCO, Sept 27 (Reuters) - Global index provider FTSE Russell said it will start including mainland Chinese shares in its major benchmarks from June next year, in a move that it expects will draw initial net inflows of $10 billion from passive investors.
The decision on Wednesday to include China's so-called A-shares in its widely followed global benchmarks follows three straight years of the group rejecting their admission on concerns about market access limits.
The FTSE Russell decision represents another win for the country's market regulator after the historic inclusion of mainland stocks in MSCI Inc's share indexes in June.
Market participants had expected the announcement by FTSE Russell, saying previous sticking points around capital controls and clearing and settlement were no longer issues. Chinese stocks were down by around a third of a percent at 0150 GMT.
FTSE Russell said in a statement that Chinese authorities had made "significant efforts to improve access for international investors".
"The Chinese authorities have continued to introduce reforms designed to open their market to international investors," Mark Makepeace, CEO of FTSE Russell, said on Thursday.
Duan Shihua, general manager of Chinese index publisher Shanghai Changer Investment Management Consulting, said the decision made sense from an investment perspective.
"If you don't add China - the world's biggest emerging market - into your emerging market index, your benchmark would be defective, at least incomplete," he said.
According to FTSE, about $16 trillion is currently benchmarked to its indexes.
The inclusion of Chinese shares means that passive funds tracking FTSE's All-World and emerging markets indexes will be forced to buy yuan-denominated A-shares.
FTSE Russell said in its statement that it would assign China A-shares "Secondary Emerging" market status starting in June 2019, and plans to implement the inclusion over three separate tranches through to March 2020.
The phased inclusion, which is designed to help index trackers better adjust to the underlying benchmark change, will be calculated using 25 percent of investable market capitalisation of around 1,250 eligible Chinese stocks, FTSE said.
Upon completion of the first phase of inclusion, China A-shares are expected to constitute about 5.5 percent of the FTSE Emerging Index, representing initial passive inflows of $10 billion of asset under management. Within the FTSE Global All Cap Index, China A-shares are projected to have a weight of 0.57 percent.
FTSE did not give a forecast of how much inflows will come from active investors benchmarked against the index.
In contrast, U.S. rival MSCI gave A-shares a roughly 0.8 percent weighting in its emerging market benchmark initially, triggering an estimated $18 billion of inflows. On Wednesday, MSCI said it would consider boosting the Chinese share weighting in its indexes next year, potentially triggering $66 billion in broad foreign inflows.
Fresh capital would help anchor China's wobbly stock market and ease depreciation pressure on the yuan, as Beijing steps up moves to counter the destabilising impact of a worsening trade war with Washington.
The FTSE inclusion "is an important next step in the development of our capital markets and reflects the long-term reforms that have been implemented over the past few years," Fang Xinghai, Vice Chairman, China Securities Regulatory Commission, said in a statement on Thursday.
Separately, FTSE Russell said on Wednesday it has consulted with market participants to establish a transparent country classification framework for its global fixed income benchmarks, and has added China government bonds to the Watch List for possible inclusion in the future.
FTSE Russell also said it would assign Iceland "Frontier" market status as of September 2019. Romania will remain on a watch list for potential inclusion as a "Frontier" market, FTSE Russell said.
Additional reporting by Noel Randewich in San Francisco; editing by Vidya Ranganathan, Sam Holmes and Leslie Adler