The recent announced changes pertaining to the management of QFII and RQFII, include streamlined repatriation of funds to allowing broader hedging and more than one onshore custodian.
The implications of the proposed rules are substantial for foreign investors. The current QFII/RQFII end-to-end process from application to actual investment takes time. However, by relaxing the entry requirements and removing the need for an investment quota, the new proposed rules could potentially shorten the process.
Besides faster processing, the removal of investment quota is of great interest to foreign investors. For RQFIIs, the scrapping of the quota could be a welcome upgrade to the previous jurisdiction-specific limitations. For example, RQFII was given to individual jurisdiction like Germany, the UK, where each country received RMB 80bn in quotas. This meant that any firm applying for an RQFII quota in a jurisdiction would need to wait in a queue after the quota was exhausted locally. Without such a quota, investors would not need to worry about quotas either on the individual or aggregate level as a jurisdiction. This also opens the RQFII scheme to any investor outside of the approved jurisdiction, making it a truly global scheme.
The deregulation also paves way for foreign institutions to set up wholly owned units on the mainland to deal with futures, mutual fund management and securities businesses. In the past, the CSRC was unwilling to raise the foreign ownership limit probably due to concerns that local securities and fund management companies would be easily edged out by foreign players if it granted them full access to the market. In the past decade domestic players have been given time to expand their business scale and enlarge their financial muscle. With the recent liberalisation of China market, it may seem that domestic players are now more ready to take on foreign players, compared to ten years ago.
Since the implementation of QFII and RQFII, a total of over 500 institutional investors from 31 countries have invested in China’s financial markets through the programs, according to SAFE. The latest changes would have significant impact not only to China’s financial markets but also to the investors.
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