RQFII extended to HK's banks, insurers

China's top securities regulator now allows commercial banks and insurance companies in Hong Kong to participate in the pilot program for renminbi qualified foreign institutional investors, or RQFII, a move to attract more long-term funds from overseas to boost the mainland capital market.

Before that, only the Hong Kong-based subsidiaries or branches of mainland fund management companies and securities companies could issue renminbi-denominated investment tools for foreign investors.

The modified regulation for the RQFII pilot program took effect on Thursday, the China Securities Regulation Commission announced.

The new rules also broadened the scope of investment tools provided by Chinese financial institutions.

They can issue more kinds of products than bonds and exchange-traded funds, or ETF, for A shares than before, based on their own portfolios and the market situation, the CSRC said.

A CSRC official said that the policy easing satisfies foreign investors' demand for diversified investments and channels to the mainland securities pool.

John Tsang Chun-wah, financial secretary of Hong Kong, said on Thursday that it welcomes the changes of regulation for RQFIIs, reported by news.gov.hk.

The change can benefit the Hong Kong market to innovate renminbi-denominated investment products and improve the offshore renminbi business, as well as accelerate renminbi internationalization, he said.

The CSRC's new rules also require that each qualified foreign institutional investor is limited to less than 10 percent of one public enterprise. All the foreign shareholders for one listed company cannot have more than 30 percent of the company's stocks under the RQFII plan.

The news didn't excite the stock market immediately. The mainland benchmark index, the Shanghai Composite Index, retreated by 22.89, or almost 1 percent, to 2,324.29 at Thursday's close, its lowest point in three days.

The total RQFII quota has been expanded to 270 billion yuan ($43.4 billion) from the initial 20 billion yuan when the pilot program was launched in December 2011.

So far, the State Administration of Foreign Exchange has approved 27 financial institutions in Hong Kong for the program. They have received 70 billion yuan in investment in total, according to the CSRC.

About 38.6 percent of the approved quota was taken to issue bonds, while the rest was used to innovate RQFII-ETF products, CSRC data show.

CSRC Vice-Chairman Yao Gang said on Thursday that the commission is studying new rules for allowing individual foreign investors to invest in the mainland stock market, and for permitting domestic private investors to purchase shares in overseas markets, aiming to further open the mainland capital market.

Fang Fang, Asia vice-chairman and CEO of China with JP Morgan Investment Banking, said that global investors have strong confidence in the Chinese stock market this year, as the economy is likely to retain steady growth.

"The forecasts of JPMorgan is 8.2 percent for GDP and 3.2 percent for inflation," said Fang, who is also a member of the ongoing first session of the 12th Chinese People's Political Consultative Conference.

The renminbi internationalization process has accelerated in recent years thanks to a push from the government, he said. "The strengthening Chinese economy also helps lift the currency's international status," he added.

RQFII has moved renminbi back to the mainland from overseas markets, according to Fang, the JPMorgan senior manager.

"The next step is to innovate more renminbi-denominated financial products to improve it into a currency of international settlement and investment for a third country," Fang said.

chenjia1@chinadaily.com.cn