RMB Qualified Foreign Institutional Investor

Established in 2011, the Renminbi Qualified Foreign Institutional Investor (RQFII) program is a policy initiative that allows foreign investors who hold the RQFII quota to invest directly in Mainland China’s bond and equity markets. The program represents a continued loosening of China’s capital controls and departure from its predecessor QFII. The RQFII program relaxes existing restrictions on currency settlement, adds permissible asset classes, and expands investor eligibility. The current RQFII relevant jurisdiction applies to financial organizations registered in Hong Kong, Singapore, the United Kingdom, France, Korea, Germany, Australia, Switzerland, Canada, the United States and Luxembourg.[1]

History

As the second largest economy in the world, China represents a key driver of global growth. Although the Renminbi has been elevated to reserve currency status, only 10.3% of global trade is done through the currency (as of 2015).[2] [3] Because of this imbalance, the Chinese government has undertaken measures in recent years to open the country’s capital account.

The Qualified Foreign Institutional Investor (QFII) program was launched in 2002. Primary aims were letting financial institutions outside China invest in China’s stock and bond markets. However, it was limited to certain financial institutions such as commercial banks, securities companies, insurance companies, and securities with no less than $500 million USD.

Acknowledging that further action was necessary, RQFII was jointly established in December 2011 by the China Securities Regulatory Commission, the People’s Bank of China, and the State Administration of Foreign Exchange. It allows subsidiaries of domestic fund management companies and securities companies in Hong Kong to invest in the mainland securities market.[4] Initially, RMB 20 billion of quota was divided among 21 selected financial services firms in Hong Kong. The available quota was increased steadily throughout 2012 during the rollout of Phases II and III of the plan, rising from RMB 50 billion to RMB 70 billion in quota and topping out to 270 RMB billion by the year’s end. Launching Phase IV of the program in 2013 allowed for inclusion of firms based in Singapore and London. 2014 saw inclusion of firms based in Paris and Taiwan.

Available Instruments

The RQFII scheme applies to the following instruments:

  • Exchange-listed or transferred A-share (not including the New Third Board)
  • Bonds, warrants, and inter-bank market fixed income products (not including repo, ABS, etc.)
  • Mutual funds and aggregate asset management plans issued by mutual fund managers or brokerage houses (not including subsidiaries of these institutions or priority-inferior funds, etc.)
  • Stock index futures
  • Stock IPOs, issuance of convertible bonds, placements and additional offerings, etc.
  • Other instruments approved by CSRC

Eligible Applicants

The RQFII program is open to two categories of investors:

  1. Applicants in the Relevant Jurisdictions that are subsidiaries of Chinese fund management companies, Chinese securities companies, Chinese commercial banks, and Chinese insurance companies
  2. Financial institutions that are registered in a Relevant Jurisdiction and with a principal place of business in a Relevant Jurisdiction

The RQFII eligible jurisdictions are currently Hong Kong, Singapore, the United Kingdom, France, Korea, Germany, Australia, Switzerland, Canada, the United States, and Luxembourg.[5]

RQFII vs QFII

RQFIIQFII
RegulatorCSRC, SAFECSRC, SAFE
Criteria of ApplicantsCommercial Banks
  • In operation for more than 10 years
  • Securities AUM no less than USD 5 billion
  • Tier 1 Capital no less than USD 300 million

Securities Companies

  • In operation for more than 5 years
  • Securities AUM no less than USD 5 billion
  • Capital no less than USD 500 million

AMC, insurance companies and other institutions

  • Business experience of more than 2 years
  • Securities AUM no less than USD 500 million
A financial institution that
  • Has a healthy financial condition, a good credit standing,

and its domicile and business qualification meet the requirements of the CSRC

  • Has effective corporate governance and internal controls, and has practitioners

who meet the relevant professional qualification requirements of the residential country or region

  • Operates its business in a compliant manner and has not been subject to serious

penalties that are meted out by any regulators of its domicile in the last three years or since its inception; and

  • Other requirements stipulated by the CSRC in accordance with the principle of

prudential regulation

Lock-up Period for Open-ended FundNone3 months
Fund Repatriation100% principal after lock-up period20% of principal net worth at the end of past year every month

[6]

Top 20 RQFII Quota Holders

Name of InstitutionPlace of domicileQualification approval dateApproved Quota

(in USD, million)

CSOP Asset Management LtdHong Kong9/22/2014$6,891
Vanguard Investment Australia LtdAustralia1/27/2016$4,484
E Fund Management (HK) Co., LimitedHong Kong5/30/2014$4,066
China Asset Management (Hong Kong) LimitedHong Kong7/26/2013$3,259
BlackRock (Singapore) LimitedSingapore5/30/2016$2,990
Harvest Global Investment LimitedHong Kong9/22/2014$2,203
Haitong International Holdings LimitedHong Kong8/26/2014$1,599
Bosera Asset Management (International) Co., LtdHong Kong8/26/2014$1,435
Shinhan BNP Paribas Asset Management Co.,LtdKorea4/28/2015$1,196
Taikang Asset Management(Hong Kong) Company LimitedHong Kong8/26/2014$1,106
Guoyuan Securities (Hong Kong)Hong Kong8/26/2014$1,091
Guotai Junan Financial HoldingsHong Kong5/30/2014$1,031
China Life Franklin Asset Management Co.,LtdHong Kong8/26/2014$972
Carmignac GestionFrance6/29/2015$897
Lyxor Asset ManagementFrance5/29/2015$897
Deutsche Asset & Wealth ManagementGermany3/26/2015$897
ABCI Asset Management LimitedHong Kong7/30/2014$792
GIC Private LimitedSingapore4/28/2015$747
Swiss Reinsurance Company LtdSwitzerland7/29/2015$747
Generali Investments Luxembourg S.A.Luxembourg4/28/2016$747

[7]

References

  1. State Administration of Foreign Exchange
  2. Trade growth to remain subdued in 2016 as uncertainties weigh on global demand World Trade Organization, April 7, 2016. Retrieved 2016-07-14.
  3. China Promoting International Use of RMB Global Trade, February 12, 2016. Retrieved 2016-07-14.
  4. What is QFII and RQFII? Shanghai Stock Exchange. Retrieved 2016-07-14.
  5. State Administration of Foreign Exchange
  6. China Securities Regulatory Commission Archived 2016-06-11 at the Wayback Machine
  7. 人民币合格境外机构投资者(RQFII)投资额度审批情况表(截至2016年6月29日), State Administration of Foreign Exchange, June 30, 2016. Retrieved 2016-07-14.
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