RQFII scheme to be expanded in overseas investment drive

China’s securities regulator is planning to expand the RMB qualified foreign institutional investor (RQFII) programme to accelerate the opening up of domestic capital markets to overseas investors, its vice-chairman Yao Gang told the Asian Financial Forum yesterday.

The RQFII scheme was introduced last month to permit Hong Kong subsidiaries of Chinese fund companies and securities firms to raise renminbi offshore and invest back into the onshore securities market.

An initial quota of Rmb20 billion ($3.1 billion) was announced to be shared among firms approved for a licence, and already this sum has been allocated in full to 21 companies.

And at the forum Yao Gang affirmed that the China Securities Regulatory Commission (CSRC) is intent on expanding the programme.

Ben Zhang, joint managing director of Hai Tong International Asset Management, predicted the CSRC would unveil a second batch of RQFII quotas within six to nine months, with an amount exceeding the previous Rmb20 billion.

Having launched an offshore RMB fixed income fund only yesterday, Doris Lian, CEO of Da Cheng International AM, points out that expansion of the RQFII scheme will stimulate further growth in offshore RMB deposits, generating a need for more RQFII investment products.

CSRC’s efforts to push forward the RQFII programme are in line with Beijing’s drive to increase overseas investment this year and improve the structure of the domestic capital markets, including greater participation from institutional investors.

During a securities and futures regulatory meeting on January 9, CSRC chairman Guo Shuqing indicated plans to quicken the approvals process for qualified foreign institutional investor (QFII) licences and increase investment quotas, and at the same time enlarge the RQFII scheme.

And last weekend Dai Xianglong, chairman of the National Council for Social Security Fund (NCSSF), urged incremental expansion of QFII investment quotas and the eventual removal of quota restrictions.

He suggested that China learn from the experiences of other countries such as India in terms of opening up their domestic stock market to foreign investors and gradually increasing QFII investment quotas until the restrictions are finally abolished.

Close regulatory restrictions on foreign institutional capital could be replaced by the establishment of caps on each institutional investor’s holding of individual stocks, and that could be executed automatically in the trading process, Dai notes.

According to CSRC’s latest disclosure on December 13 last year, a total of 121 foreign institutions have obtained QFII licences. Korea’s National Pension System is among the latest batch to receive a licence, as reported by AsianInvestor.