China is planning to merge two schemes aimed at foreign institutional investors and add derivatives to the list of products they can invest in, as Beijing moves to further open up the country’s capital markets.
The China Securities Regulatory Commission (CSRC) is seeking public opinion on its plan to combine the Qualified Foreign Institutional Investors (QFII) and RMB Qualified Foreign Institutional Investors (RQFII) programmes, the regulator says in a statement on January 31.
The plan also includes lowering the assets threshold and track record requirements for applicants, and streamlining approval procedures.
The QFII allows foreign institutional investors to invest in China’s capital markets. The RQFII enables them to invest renminbi raised offshore in the country’s onshore assets. The schemes were introduced in 2002 and 2011, respectively.
The merger is to “facilitate the opening of China’s capital markets and introduce more foreign capital”, the CSRC says, adding that investors will also be allowed to invest in onshore derivatives such as financial and commodity futures and options. Currently, investors under both schemes can only invest in plain vanilla assets such as stocks and bonds.
According to Patrick Wong, head of China sales and business development at HSBC Securities Services in Hong Kong, the move will simplify the process for foreign investors to enter the Chinese capital markets.
“Once in place, foreign investors will only need to apply for one licence and they can access much more diversified investments onshore,” Mr. Wong tells Asia Asset Management (AAM).
He says the potential addition of products such as financial futures will also be an incentive for investors to use the schemes as they cannot invest in such instruments via programmes such as the cross-border stock and bond connect channels.
Melody Yang, a partner in the Hong Kong office of Simmons & Simmons, a UK law firm, says the QFII and RQFII schemes have become less attractive in recent years because of their quota limits, and the fact that foreign investors can now invest in other ways.
So the CSRC’s plan will “significantly enhance [their] appeal to foreign investors”, Ms. Yang tells AAM.
Scott McLaren, head of the Hong Kong office of US financial services firm Brown Brothers Harriman, adds that the merger will “make it easier and potentially appealing” for foreign investors to use the schemes and also the stock and bond connect, as China’s inclusion into major global benchmark indexes draws greater investment allocations to the country.
The stock and bond connect channels allow investors in Hong Kong and China to invest in each other’s markets.
China granted a total quota of US$101.1 billion to 309 foreign institutional investors under the QFII scheme as at December 31, 2018, according to figures from the State Administration of Foreign Exchange, the country’s foreign reserves regulator. Another 640 billion RMB (US$92.8 billion) was granted under the RQFII to 206 foreign institutions as at end-September 2018.
