China is easing controls over two long-running cross-border investment schemes by letting them expand from plain vanilla investments into derivatives and private funds, marking Beijing’s latest step to open up the country’s huge financial markets to foreign investors.
The move, which will take effect in November, covers Qualified Foreign Institutional Investors (QFII), an 18-year-old scheme that allows foreign institutional investors to invest in China’s capital markets, and the newer RMB Qualified Foreign Institutional Investors (RQFII) programme. The latter, introduced in 2011, permits foreign investors to invest renminbi raised offshore in China’s onshore assets.
Managers under the two schemes have hitherto only been allowed to invest in basic financial assets such stocks and bonds.
Effective November 1, they will be able to move into private investment funds, and financial and commodities futures and options, the Chinese Securities Regulatory Commission (CSRC), says in a joint statement with the central bank and the State Administration of Foreign Exchange on September 25.
They will also be permitted to participate in bond repurchase transactions, margin trading, and securities financing on stock exchanges.
“The CSRC will stay committed to market liberalisation and accelerate the two-way opening-up of Chinese domestic capital markets at a higher level,” the regulator says.
The move comes four months after Beijing scrapped quota limits in the two schemes. Last year, it streamlined the application process.
Generally, “granting approvals for the things like margin trading will encourage QFII and RQFII managers to pursue hedging-related investments”, Alwyn Li, a partner at Hong Kong law firm Deacons tells Asia Asset Management.
But he says public fund managers may prefer investing through schemes like Stock Connect – which allows investors in Hong Kong and China to trade stocks in each other’s markets – rather than via the QFII or RQFII routes which incur additional legal cost if they overdraw quotas.
“Overall, the QFII and RQFII channels may look relatively more attractive to private fund managers compared to public fund houses,” Mr. Li says.
As of April 2020, Beijing had granted US$114 billion of QFII quotas to 295 foreign investors, and 713 billion RMB ($100.7 billion) of RQFII quotas to 227 investors, according to China’s official data.
