China eases quota restrictions for foreign institutional investors

2016 Rio Olympics - Athletics - Final - Men's 20km Race Walk - Pontal - Rio de Janeiro, Brazil - 12/08/2016. Wang Zhen (CHN) of China and Cai Zelin (CHN) of China are seen behing a flag. REUTERS/Ricardo Moraes FOR EDITORIAL USE ONLY. NOT FOR SALE FOR MARKETING OR ADVERTISING CAMPAIGNS.

HONG KONG/BEIJING: China’s regulators on Monday issued revised rules on foreign institutional investments in the country’s domestic securities using the yuan currency, another step forward in opening up its markets and encouraging more fund inflows.

Renminbi Qualified Foreign Institutional Investors (RQFII) will be given quotas no greater than a certain proportion of their asset sizes after registration with the State Administration of Foreign Exchange (SAFE), the regulator said on its website.

If the desired investment quota surpasses the base quota, investors will need to gain approval from SAFE.

Foreign sovereign funds, central banks and monetary authorities are not restricted by asset size and can obtain quotas based on their investment needs.

The rules were jointly issued with the People’s Bank of China (PBOC).

Individual RQFIIs needed to previously seek approval from SAFE for any quota to buy stocks and bonds in China and the amount of quota was given on a case by case basis.

“This will benefit mostly asset managers whose asset sizes are big but investment quotas are limited,” said a person familiar with RQFII investment at a Chinese asset management firm in Hong Kong.

The RQFII rule changes came just months after Chinese regulators revised the US dollar-based QFII investment scheme in February to raise the investment limit for foreign investors.

The RQFII programme, set up in 2011, allows financial institutions to use offshore yuan to buy securities in mainland China, including stocks, bonds and money market investments.

China has granted RQFII quotas to nearly 20 foreign countries or territories, but so far only Hong Kong has used up its 270 billion yuan (US$40.44bil) quota. - Reuters