RQFII is the abbreviation for "Renminbi Qualified Foreign Institutional Investor", referring to a program that allows offshore renminbi investment in the A-share market via Chinese brokerages and fund companies. In order to be differentiated from QFII, the RQFII is also called by industry insiders as "mini-QFII". On 16 December last year, the China Securities Regulatory Commission, the People's Bank of China and the State Administration of Foreign Exchange jointly issued "Trial Rules on Renminbi Qualified Foreign Institutional Investors to Invest in Mainland Securities through Fund Management Companies and Brokerages." The initial quota was set at 20 billion yuan. Under the pilot program, the RQFII program only applies to Hong Kong subsidiaries of domestic fund management companies and brokerages, which use renminbi funds raised in Hong Kong to invest in the mainland securities markets.
Up to now, the China Securities Regulatory Commission has approved nine fund companies and 12 brokerages to receive the RQFII qualification. The SFC in Hong Kong has received 19 applications to launch RQFII products and 15 of them have gained the green light with a total quota of 15.2 billion yuan.
However, the RQFII products launched by different institutions are very similar. Lin Yong, vice chairman and executive president of Haitong International, told 21st Century Business Herald that "the first batch of RQFII products are just like egg-yolk moon cakes sold during the Mid-Autumn Festival, with similar product types and launch timings." China Universal Asset Management, Haitong Securities and other companies and organizations received all the necessary approvals within a month and launched their new products quickly. One of their key purposes was to grab the market share.
As for the government, the RQFII pilot plan can provide a new channel for the offshore renminbi to return to the mainland. It can promote the establishment of an offshore RMB center in Hong Kong, paving the way for the internationalization of the RMB. Zhang Chun, Executive Dean at Shanghai Advanced Institute of Finance, Jiao Tong University, told China Business News that "Hong Kong renminbi deposits have reached more than 600 billion renminbi. There is already a bottleneck, which should be broken to create a win-win situation for Hong Kong and the mainland. Once the deposit reaches a size of 2 trillion renminbi , the renminbi market in Hong Kong will enter a virtuous cycle."
Taking into account these benefits under the RQFII program, authorities expressed the willingness to expand the trial program shortly after the pilot rules were unveiled. On January 8, Guo Shuqing, Chairman of the China Securities Regulatory Commission, said at the national work conference of securities and futures regulators that the country will gradually expand the scope and investment quotas under the renminbi qualified foreign institutional investor (RQFII) program.
On the same day the RQFII rules were unveiled, the SFC in Hong Kong issued a press release to welcome the initiative. Dr. Eddy Fong, chairman of SFC, said in the press release that oday announcement not only marks another major milestone in the process of transforming RMB into an internationally accepted and widely used currency, but also confirms the strategic significance of Hong Kong as a testing ground for mainland financial reforms.
Although the RQFII pilot program won a burst of applause, Mrs Alexa Lam, the SFC Deputy Chief Executive Officer and Executive Director of Policy, still warned investors that while QFII funds offer one of the most direct channels for local investors to participate in the Mainland bond and stock markets, before investing in this new class of products investors should carefully read the offering document including the product key facts statement to fully understand how a particular RQFII fund works and the associated risks.
