China relaxes RQFII quota rules

Added 8th September 2016

The Chinese authorities have eased the quota system and the rules for repatriation of capital for overseas institutions investing in onshore assets.

China relaxes RQFII quota rules

Effective on 5 September, the renminbi qualified foreign institutional investor (RQFII) program has been modified to allow qualified institutional investors to automatically receive a base quota instead of going through the approval process, according to a joint-statement (in Chinese) by People’s Bank of China and State Administration of Foreign Exchange (SAFE).

In addition, the quota amount limits for registered foreign sovereign wealth funds, central banks and monetary authorities have also been scrapped.

Apart from these three groups, other qualified institutions will now receive a base quota, with an amount that depends on their assets under management.

Foreign firms will be initially granted the sum of $100m and 0.2% of three-year average AUM, minus its existing quota under the QFII scheme, according to SAFE.

If an applicant has a parent firm b ased on the mainland, then the base quota amount would be RMB 5bn ($748m), plus 80% of AUM a year prior, minus any designated QFII quota, SAFE said.

China's QFII and RQFII schemes allow foreign institutional investors to invest in onshore assets using US dollar and offshore RMB, respectively.

The limits on repatriating capital have also relaxed for the RQFII programme. Unlike the QFII scheme, there is no 20% monthly repatriation limit. The lock-up period for non open-ended funds is shortened to three months from one year.

According to a report from China consultancy Z-Ben, an aggregate amount of RQFII quota is assigned to 17 countries and territories, totaling RMB 1.48trn, including the latest round of RMB 250bn to the US, allocated in June.

But so far, only the RMB 270bn quota assigned to Hong Kong firms has been fully used, the report said.

“Excluding Hong Kong, quota issuance stands at a mere 20.2%. With the new quota award rules...this capacity may be tested in the next six months,” the report said.

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