Chinese regulators will make Rmb50 billion ($8.2 billion) in renminbi qualified foreign institutional (RQFII) quota available to financial institutions in Singapore, but have not specified a time frame.
The move comes three months after the China Securities Regulatory Commission (CSRC) announced plans to expand the RQFII programme to London and Singapore, and the week after it emerged that the UK would receive Rmb80 billion of quota.
The July announcement about extending the RQFII programme to London and Singapore followed news from China in June that it had signed an agreement to bring the programme to Taiwan.
RQFII holders can invest directly into Chinese equities and bonds using offshore renminbi. The scheme is popular in Hong Kong, and participants expect Singaporean investors to be keen to participate.
“The appetite for RQFII is likely to be driven by institutions and high-net-worth individuals near-term,” says Felix Ng, senior analyst at Singapore-based consultancy Cerulli. “The bulk of retail investors [in the Lion City] are still not well acquainted with the concept of RQFII.”
Singapore’s offshore renminbi pool stood at Rmb140 billion at the end of July, compared with Hong Kong’s Rmb709.5 billion as of August and London’s Rmb100 billion at the end of last year.
Private banks are likely to be instrumental in bringing RQFII products to the investor community in Singapore and Southeast Asia, but they face challenges amid looming regulations, Ng says.
“Regulators are starting to clamp down on things like tax evasion and money laundering, so private banks might be subject to more oversight going forward,” he adds. “But I foresee private banks [will also] play an important role in bringing RQFII products to HNW investors in other parts of Southeast Asia, given their existing relationships.”
Meanwhile, Chinese fund houses have been mulling setting up operations in the Lion City, due to both its proximity to Southeast Asian investors and favourable regulatory environment.
Earlier this year, Hong Kong firm Haitong International opened an office in Singapore with a view to selling RQFII investment products to the Southeast Asian markets, and others are expected to follow suit.
There are a number of Chinese firms seeking business opportunities in Singapore, but CSOP is not among them, says Ding Chen, CEO of CSOP Asset Management and chairwoman of the Chinese Asset Management Association of Hong Kong.
Singapore’s regulatory environment is also viewed as more favourable than Hong Kong for managers looking to launch new RQFII products.
One senior executive at an RQFII holder expressed concerns at the strict regulatory environment in Hong Kong, noting he is “frustrated” with how long it takes for products to get approval. The process is much more straightforward in Singapore, he says.