context: Foreign investment was one of ‘six stabilisations’ outlined at the 2018 Q2 Politburo meeting. As the economy slows and domestic stocks fall, the state needs foreign capital to boost the market and, hopefully, move the investment culture away from speculation.
China Securities Regulatory Commission (CSRC) is calling for comment on ‘Management measures for qualified foreign institutional investors (QFII) and RMB qualified foreign institutional investors (RQFII) domestic securities and futures investment’ until 2 Mar 2019.
As of end 2018, there were 309 QFIIs with total investment quota of US$150 bn (now increased to US$300 bn). Total RQFII quota is C¥1.94 tn. 233 RQFIIs from 19 countries and regions possess C¥646.7 bn.
Current revisions include
- merging QFII and RQFII systems into one; foreign institutional investors only have to apply for qualification once, and those not granted RQFII quota can raise funds in foreign currencies
- relaxing access requirements by
- cancelling quantitative metrics but keeping institution type and compliance requirements
- streamlining application documents and approval time span
- expanding investment scope: besides existing types, QFII and RQFII can also invest in
- new over-the-counter board stock
- bond repo
- private equity funds
- financial and commodity futures
- QFII custodian qualification is changed from approval to filing, and no number restriction is imposed on QFII custodians
Fang Dongming 房东明 UBS China securities director says the move will have a positive impact on the market and be warmly welcomed by international investors. Combining the previous quota rise from US$150-300 bn, adds Fang, the policy will significantly improve capital turnover and foreign participation in China’s markets. Many famous wholly foreign owned private equity funds are constrained by the lack of performance track records and marketing channels, says Fang, but the QFII arrangement allows foreign private equity funds to leverage overseas client resources from parent companies.