By Leo Zhang
China financial regulators have expanded the quota of the RMB Qualified Foreign Institutional Investor program, known as RQFII, from 20 to 70 billion yuan, as part of efforts to beef up capital market liberalization and spur the use of the Chinese currency.
The new initiative is aimed at urther opening the mainland capital market, expanding the investment channels of overseas RMB deposits and meeting the demand of foreign investors for mainland equities, the China Securities Regulatory Commission said in an April 3 announcement.
The RQFII program, which was launched in December last year, has already enrolled 21 financial institutions and granted the first batch of 20 billion yuan in investment quotas. Under the RQFII scheme, Chinese fund managers and brokers are allowed to raise RMB funds in Hong Kong via their subsidiaries to invest them directly in the mainland capital markets, including stocks and bonds.
The RQFII program complements the existing Qualified Foreign Institutional Investor, or QFII, project, which lets overseas institutions convert foreign currencies into RMB and trade yuan-denominated equities in Shanghai and Shenzhen. Also on April 3, the CSRC raised quotas for QFIIs from US$30 to US$80 billion.
RQFII has played a positive role in nhancing and boosting Hong Kong status as a global financial center, the CSRC said in the statement. Alexa Lam, Deputy Chief Executive Officer of Hong Kong Securities and Futures Commission, has also called RQFII funds ne of the most direct channels for local investors to participate in the Mainland bond and stock markets
Unlike the initial 20 billion yuan quota, at least 80% of which must be invested in mainland debt, all of the newly increased 50 billion yuan RQFII quota will be invested in A shares. Institutions should use the new quota to launch RMB exchange-traded funds on the Hong Kong Stock Exchange that will invest in A shares, the securities regulator said.
The CSRC also said that it will discuss with government agencies, including the People Bank of China and the State Administration of Foreign Exchange, to further expand the RQFII program.
Industry analysts said that as the RMB appreciation is slowing and the trade surplus is shrinking, the expansion of the RQFII project may help ease the pressure of capital outflows. It will also help encourage long-term investors to enter the mainland stock markets.
lthough the move won likely boost mainland-listed stocks by a significant amount, it shows the government determination to aid the market, said Su Xiaodong, an analyst with Hua n Futures Co. aising the quotas of QFII and RQFII will help promote the liberalization of exchange rates and interest rates. /p>
