China opens QFII with eye on long term

The CSRC slashes minimum AUM requirements for asset managers and institutional investors to qualify as QFIIs, while granting $1.2 billion in fresh quotas.
China opens QFII with eye on long term

China has pushed forward QFII deregulation to make it easier for long-term players to trade its capital markets and released $1.2 billion in fresh quota to qualified foreign institutional investors.

The China Securities Regulatory Commission (CSRC) announced a set of easing measures for the QFII scheme late last week with respect to application and approval procedures, investment scope and operational efficiency. It came after feedback from foreign financial institutions during a consultation period that ran from June 20 to July 5.

Foreign investors can now take up to 30% of equity in a company (previously 20%), invest in the interbank bond market and participate in the private placement of debt securities issued by small and mid-size companies. QFIIs are also allowed to trade through several brokers to enhance operational efficiency.

The CSRC has also lowered the requirements for QFII applications, which can now be submitted electronically.

Private equity firms can now apply for QFII licences as asset managers. For asset management firms, insurers and other institutional investors (pension funds and sovereign wealth funds), the regulator has also shortened the minimum threshold for operating history from five years to two, and slashed the AUM requirement from $5 billion to $500 million.

But foreign securities firms will still need to show five years’ operating history, AUM above $5 billion and net assets of at least $500 million. Foreign commercial banks need to have at least 10 years’ experience, first-tier capital of $300 million and AUM above $5 billion.

In its statement CSRC says it is proactively coordinating with other departments to relax foreign exchange and tax policies under the QFII scheme.

Meanwhile in an announcement posted on its website on July 29, but dating back to the middle of the month, the State Administration of Foreign Exchange (Safe) granted $1.2 billion to six QFII licence holders.

The Hong Kong Monetary Authority (HKMA) received $700 million, adding to its initial quota of $300 million which was granted on March 18 last year.

That means Hong Kong’s central bank now has $1 billion to invest, the largest quota to be awarded alongside that of Norges Bank (the central bank of Norway), which received an additional $300 million on June 8.

Both institutions have now hit the quota system’s upper investment limit ($1 billion), although Chinese regulators are believed to be about to raise the cap.

Five other quotas in the latest batch, at $100 million each, went to Templeton Investment, Korea Investment Trust, Manulife Asset Management, Van Eck Associates and William Blair.

There are now a total of 149 QFIIs collectively holding $28.53 billion in quotas as at July 20, according to data from Safe.

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