China grants huge RQFII quota to US firms

Added 8th June 2016

For the first time, China has granted US asset managers an RQFII quota, which totals RMB 250bn ($38bn).

China grants huge RQFII quota to US firms

The announcement was made on Tuesday by Yi Gang, deputy governor of the People’s Bank of China, and timed for the US-China bilateral annual summit in Beijing that began on Monday. 

Consultant Z-Ben Advisors director of operations Chantal Grinderslev said the Renminbi Qualified Foreign Institutional Investor (RQFII) quota handed to US firms is “an open door of encouragement and a strong nudge towards MSCI inclusion.

“While the decision may not be demand-driven on a broad scale, the US clearly has some institutions in mind to receive the RQFII license by year-end. ETF providers, for example, need significant quota to go physical and narrow their tracking error,” she said.

Bank of China (Hong Kong) chief economist E Zhihuan noted the move is likely to boost the yuan clearing and settlement business in the US, an area in which other regions such as London and India have had strong growth.

The RQFII scheme, which debuted in 2011, is currently one of the key ways for overseas investors to use offshore yuan to invest in China's domestic markets. The total RQFII quota available for issuing is now RMB 1.48trn for 17 countries and territories.

In terms of actual quota issuance, about RMB 502bn of quota was issued to 165 institutional investors across 10 regions as of May, according to the State Administration of Foreign Exchange. Hong Kong has the largest quota of RMB 270bn which is fully used, followed by Korea with RMB 74bn and Singapore with RMB 55bn issued.

Another investment channel, the QFII scheme, which gives offshore investors with US dollars an avenue to invest in China's onshore markets, was first launched in 2002. It has issued quota of $81.1bn across 273 firms as of the end of last month.

US asset manager Blackrock, for instance, already has $4.91bn in investment quota to invest in China. The total includes QFII quota and, through its Asia and UK-based subsidiaries, RQFII quota.

According to a recent Standard Chartered survey, which polled 900 global market participants and industry players, 62% of them use QFII and less than a third are using RQFII to invest in China.

Of the total number of respondents, half of them participated in Shanghai-Hong Kong Stock Connect to trade A-shares listed on the Shanghai bourse.

As for future investment, 40% of respondents said to they will use the RQFII scheme and 36% said the QFII scheme.



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