Chinese regulators have announced the launch of the RQFII scheme earlier than expected. The scheme will enable Hong Kong subsidiaries of mainland fund management firms to invest back into the onshore securities market.

Last week AsianInvestor reported expectations that the RMB qualified foreign institutional investor (RQFII) guidelines would be released over the Christmas period, following their inclusion in the mainland and Hong Kong Closer Economic Partnership Arrangement.

But in a joint release on Friday, the China Securities Regulatory Commission (CSRC), the People’s Bank of China (PBoC) and the State Administration of Foreign Exchange (Safe) said the pilot programme would be effective immediately.

Under the programme, an initial quota of Rmb20 billion ($3.1 billion) will be shared among Hong Kong subsidiaries of Chinese securities companies and fund management companies that obtain a licence. 

The CSRC will decide whether to grant an RQFII licence within 60 days of receiving an application. The licensee must then apply to Safe for an investment quota within a year, with the waiting period also limited to 60 days.

Qualified entities can invest no less than 80% of the funds into fixed income securities and no more than 20% in equities. They are also allowed to subscribe to IPOs, convertible bonds and secondary offerings.

Each institution can trade through no more than three domestic securities companies. Investment in the interbank market may be conducted according to PBoC regulations.

The scheme allows domestic fund management companies and securities firms to be trustees for these Hong Kong subsidiaries, which will help them to some extent to market the new product to retail investors in Hong Kong as they leverage their parent company’s onshore investment experience.

Yap Cheeping, head of securities and fund services for Citi in Hong Kong, tells AsianInvestor that some Chinese fund houses are planning to replicate their existing balanced fund strategy in China to address the issue of lack of track record in managing retail funds in Hong Kong.

“Although the RQFII fund in Hong Kong will be a new fund, many of the Chinese houses are trying to position and differentiate that they are applying a proven investment strategy/approach that had been tested in China for the RQFII fund to address the lack of track record of these funds,” Yap explains.

Some fund houses will combine investment teams in Hong Kong and the mainland to construct portfolios and manage their new RQFII product.

“Our Hong Kong team will analyse investors’ risk profile while the team in China will do research of the onshore bond market,” confirms one senior executive.