Home » Business » Biz Special
RQFII scheme draws more inflows
Print Edition
AS China hurries to extend the yuan’s footprint beyond Hong Kong, it is also quickly opening up its domestic capital markets to foreign investors hungry for yield.
The expansion of the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme is poised to see faster yuan flows to China as it is much easier for investors now to enter the country than via the older QFII programme.
China announced earlier this month that it would grant a quota of 80 billion yuan (US$12.9 billion) to Germany and South Korea, respectively, adding to the existing 480 billion yuan quota allocated to Hong Kong, Singapore, the UK and France.
Launched in 2011, the RQFII scheme allows financial institutions to use offshore yuan to invest in the mainland’s securities markets, including in stocks, bonds and money market instruments.
Compared with its cousin Qualified Foreign Institutional Investor (QFII) program which was denominated in the dollar and launched in 2002, RQFII has many advantages since it has far fewer restrictions on investment targets and cross-border yuan movement.
QFII and RQFII are among the very few channels through which foreign investors can tap China’s onshore market.
Foreign investors under RQFII can make investments in China’s bond and stock markets at their own discretion; while QFII investors have to invest at least 50 percent of their funds in equities and hold no more than 20 percent in cash.
However, China’s stock market performance has been so far the worst in the world this year, in dollar terms, Thomson Reuters data show. The IBES MSCI China Index trades at 1.44 times book value, near its cheapest levels since Thomson Reuters Datastream began compiling the data in 2004.
The bond market looks appealing though with 10-year government bonds yielding around 4.15 percent, about 20 basis points higher than its counterpart in Hong Kong’s dim sum bond market where global investors have easy access.
In terms of repatriation, RQFII investors enjoy daily liquidity for open-ended funds and are able to use both yuan and dollars to repatriate principals and gains with no limit imposed on the amount.
For QFII investors, proceeds remittances can only be realized on a weekly basis or after a lock-up period, and there is a cap on how much investors can transfer across borders.
The popularity of the more flexible RQFII scheme is reflected in the pace at which the Hong Kong quota has been taken up as well as the fact that more QFII investors such as Schroders, BlackRock and Value Partners have started to apply for RQFII licences.
The outstanding amount under the RQFII scheme stood at 250.3 billion yuan in June, statistics from the State Administration of Foreign Exchange (SAFE) showed, accounting for more than 90 percent of the quota Hong Kong has.
In comparison, the outstanding amount of QFII quota was $56.5 billion for the month, only about a third of the total $150 billion quota China has promised.
Concerns about investing in China persist, however, under both QFII and RQFII, as the world’s second-largest economy is still waiting for more signs of recovery and its currency has yet to regain sustainable strength.
China’s economy probably steadied in the second quarter with annual growth at 7.4 percent, the lowest level in 18 months, a recent Reuters poll showed.
- About Us
- |
- Terms of Use
- |
-
RSS - |
- Privacy Policy
- |
- Contact Us
- |
- Shanghai Call Center: 962288
- |
- Tip-off hotline: 52920043
- 沪ICP证：沪ICP备05050403号-1
- |
- 互联网新闻信息服务许可证：31120180004
- |
- 网络视听许可证：0909346
- |
- 广播电视节目制作许可证：沪字第354号
- |
- 增值电信业务经营许可证：沪B2-20120012
Copyright © 1999- Shanghai Daily. All rights reserved.Preferably viewed with Internet Explorer 8 or newer browsers.
