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July 5, 2017

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Hong Kong's RQFII quota jumps

CHINA will nearly double its quota for overseas investors to buy securities on the mainland through Hong Kong to forge closer financial links between the two, the People’s Bank of China said yesterday.

The State Council, or Cabinet, has approved an increase in the quota under the Renminbi Qualified Foreign Institutional Investor program for Hong Kong to 500 billion yuan (US$73.5 billion) from 270 billion yuan.

The move aims to meet the demand of Hong Kong investors for yuan-denominated assets, drive the opening-up of the onshore financial market and strengthen link between the mainland and Hong Kong, the PBOC said.

The RQFII program now covers 18 areas, with Hong Kong allocated the largest of the total 1.74 trillion-yuan quota. The US allocation is 250 billion yuan of the quota, followed by South Korea with 120 billion.

The Hong Kong Monetary Authority yesterday welcomed the expansion as the original 270 billion yuan quota has been filled.

“The RQFII has been an important channel for overseas investors to invest in the mainland financial markets since its introduction in late 2011,” Norman Chan, authority chief executive said in a statement.

“Hong Kong’s RQFII quota has been increased significantly and remains the largest in the world, and this highlights our important role as an intermediary to facilitate overseas investors’ participation in the Mainland financial markets,” he said.

Chan hopes market players will utilize the increase and develop more diversified yuan business by leveraging Hong Kong’s position.

The RQFII was one of the earliest attempts by China to internationalize its currency by allowing offshore yuan to flow back.

Institutional investors need to register with the mainland foreign exchange regulator to be granted RQFII quota according to their total assets. Approval is required if an institution wishes to increase its quota.

A Shanghai-Hong Kong stock connect was launched in 2014 and a Shenzhen-Hong Kong connect was opened last year to offer overseas investors easier access to the mainland capital market.

A bond connect started a trial on Monday to allow qualified foreign investors to trade in mainland’s interbank bond market.


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