The chairwoman of newly formed Hong Kong group the Chinese Asset Management Association has denied it is lobbying mainland authorities to slow international expansion of the renminbi qualified foreign institutional investor (RQFII) scheme.
Hong Kong newspaper Ming Pao reported that the association wrote to the China Securities Regulatory Commission (CSRC), People’s Bank of China and the State Administration of Foreign Exchange last week to express its reservations.
It comes in response to a CSRC announcement on July 12 of plans to extend the RQFII programme to London and Singapore, with no timeframe given. Taiwan was approved to participate in RQFII this June.
But Ding Chen, chairwoman of the association, tells AsianInvestor that it would be a misunderstanding to suggest it is lobbying to slow RQFII expansion, saying it has submitted a proposal specifically related to RQFII development in Hong Kong.
“We think Hong Kong is the best market for RQFII development currently, and RMB internationalisation should [be taken] step by step,” she says. “However, we are not lobbying regulators to slow the pace of extending the RQFII programme to other regions.”
She acknowledges that extending the RQFII programme to cities such as Singapore and London is all part of opening China’s capital markets.
However, an association member who spoke to AsianInvestor says the relatively small size of offshore RMB markets in Singapore and London – at Rmb100 billion and Rmb11 billion compared with Rmb698 billion for Hong Kong – means managers there will likely have to invest back into China rather than holding money offshore.
This, he suggests, would hinder growth of the offshore RMB market and hold back the currency’s internationalisation – the opposite of what Chinese regulators are seeking to achieve.
Add the fact that the RQFII programme is still less than two years old, and he argues that opening this scheme to two more cities could be hasty.
“We’re advising them to be more cautious when expanding the programme to London and Singapore,” he says, while noting the association has yet to receive any feedback.
One proposal he would like to see introduced is for fund managers in Singapore and London to be required to have operational experience of investing in China. Without it, he says they should be forced to hire a Chinese fund house to act as adviser.
“RQFII investors can get into an area that’s very new to foreign investors, including the interbank bond market,” he notes. “These areas need a Chinese [manager’s] expertise who has extensive knowledge of China to help foreign managers understand the market and eliminate the risk.”
He voices concern, too, over a potential blurring of the lines between the RQFII and qualified foreign institutional investor (QFII) programmes.
RQFII allows investment back into China via RMB, while QFII allows foreign firms to invest their US dollars into the mainland. The fear is that overseas-based managers are becoming confused over which programme to use to enter China’s markets.
The source proposes that RQFII quota simply be awarded to mutual funds domiciled in Hong Kong, while foreign investors in Singapore and London should stick to QFII.
A fund management executive based in Shanghai doubts that Chinese regulators will take the association’s letter into consideration as they “formulate policies according to their agenda [which makes it] very difficult to change their mind”.
The Chinese Asset Management Association was formed this July to strengthen the competitiveness of Chinese fund firms in Hong Kong. It comprising 23 Hong Kong-based subsidiaries of mainland houses, with members including China Asset Management, CSOP, E Fund Management, HuaAn, Bosera and Haitong. Most of its members are RQFII holders.
When launched in 2011, only Hong Kong subsidiaries of Chinese fund managers and securities firms could participate in the RQFII programme. It was extended to Hong Kong-domiciled financial institutions in March.