The People’s Bank of China (PBOC), or China’s central bank, announced on July 4 that the State Council has approved an increase of quota under the Renminbi Qualified Foreign Institutional Investors (RQFII) scheme for Hong Kong from 270 billion yuan to 500 billion yuan to further meet demand for yuan asset allocation by Hong Kong investors, and boost opening up of domestic financial market and connection with Hong Kong economy and finance.
Hong Kong Monetary Authority (HKMA) was glad about the increase of investment quota under RQFII. Norman Chan Tak-Lam, chief executive of the HKMA indicated that since being launched at the end of 2011, RQFII has always been an important channel for overseas investors to invest in domestic financial market. The quota under RQFII for Hong Kong investors hiked significantly again, making Hong Kong the overseas region with largest RQFFII quota and highlighting Hong Kong as an important intermediary for international investors to invest in domestic financial market. It hopes the industry will continue to make use of this scheme and Hong Kong’s platform to develop diversified business related to renminbi.
Hong Kong is the first region to pilot RQFII scheme and the quota for Hong Kong increased for two times to 270 billion yuan in 2014.
According to statistics from the State Administration of Foreign Exchange (SAFE), the approved quota for RQFII has totaled 543.104 billion yuan as of June 29, and Hong Kong region gained the highest investment quota with 270 billion yuan. Industry insiders reflected that cross-border capital management policy will continue to follow the principle of expanding inflow and controlling outflow of capital at present. RQFII quota is very sufficient and many institutions haven’t run out of it. Hong Hao, managing director at Bank of Communications International Holdings Co., remarked that utilization of RQFII quota depends on expectation on exchange rate of Chinese market and return on investment. The market may not run out of the entire quota approved by the authority.
In addition, statistics from the central bank showed that there have been 18 regions piloting RQFII scheme now. The latest total quota stands at 1.74 trillion yuan with Hong Kong owing the highest quota, which accounts for nearly one third of the total quota. Only second to Hong Kong, quota for the US reaches 250 billion yuan. Besides setting quota for piloting regions, China Securities Regulatory Commission (CSRC) has changed the way of approving investment quota for single institution. After gaining qualifying license from the CSRC, RQFII can acquire basic investment quota which is no more than its total assets or the securities assets under its management. The SAFE will record the basic investment quota. Applying for investment quota which exceeds the basic quota needs to be approved by SAFE.
Translated by Vanessa Chen
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