Inclusion in MSCI Inc.'s stock indexes opens a country to globalinvestment and brings a stamp of financial credibility. For thethird straight year, MSCI rejected China's mainland shares. Thedecision is a blow to President Xi Jinping's efforts to raise theprofile of his country's markets and affects investment choices covering trillions of dollars held inpensions and mutual funds around the world.

1. Can you explain the importance of this?

MSCI is the world's biggest index compiler, with more than US$10trillion in assets benchmarked to its products. While itreclassified Pakistan as an “emerging market” country on Tuesday,its call on China, the world's second-biggest stock market, was byfar the most closely watched judgment. A nod from MSCI could haveseen as much as $30 billion flow into China's markets from globalmoney managers buying shares, and much more over time. Thesymbolism of adding the mainland to the global financial communitywould have arguably been more important.

2. So what happened?

China was denied inclusion in the global Emerging Markets Indexfor the third straight year. While MSCI could choose to add thecountry in the next 12 months, it's more likely that any furtherjudgment is pushed back another year.

3. Why did MSCI reject China?

It comes down to control, specifically the control that China'sgovernment has over its financial markets. That came into sharpfocus during last year's epic boom and bust that wiped $5 trillionoff the value of mainland shares. MSCI pinpointed a monthlyrepatriation limit of 20 percent as a “significant hurdle” forinvestors such as mutual funds faced with redemptions. Theprevalence of long-term trading halts—at one point last year, halfof China's stocks were shut down—also scares money managers, whoneed to know they won't get stuck in their investments. MSCIsaid investors need more time to digest recent policy changes,including a commitment to make sure those suspensions don't happenagain.

4. What's next?

There's no question that China will one day be added to MSCI'semerging markets index; the only issue is when. While Beijing hastaken steps to roll back some of its restrictions, Tuesday'sdecision shows there's still work to be done. Whether that can becompleted in the next year is a question that will occupy policymakers and investors.