Just now, the State Administration of Foreign Exchange released a heavy signal to facilitate the acceleration of foreign investment!
By the end of August, the total amount of QFII investment in China was US$300 billion, totaling US$111.376 billion for 292 qualified foreign institutional investors. The RQFII system has been expanded from Hong Kong, China to 20 countries and regions, with a total investment of RMB 1990 billion and a total of 222 RQFII institutions having received RMB 69.33 billion.
Limitation of investment quota abolished
With the approval of the State Council, the State Administration of Foreign Exchange (SAFE) decided to abolish the investment quota restrictions for qualified overseas institutional investors (QFII) and RMB qualified overseas institutional investors (RQFII).
What was the previous QFII/RQFII system like?
Wang Chunying, spokesman and chief economist of the State Administration of Foreign Exchange, introduced that China had implemented QFII and RQFII systems in 2002 and 2011 respectively.
In June 2018, the Administration of Foreign Exchange further improved QFII/RQFII foreign exchange management. Reform initiatives include:
Firstly, the 20% proportion limit of QFII capital remittance has been abolished.
The second is to cancel the requirement of QFII/RQFII principal lock-in period.
Third, QFII/RQFII should be allowed to carry out foreign exchange hedging to hedge the exchange rate risk of domestic investment.
Fourth, optimize the quota management process, and determine the basic quota according to a certain proportion of the scale of institutional assets (or managed assets). The application for quota within the basic quota only needs to be filed, and the application for quota beyond the basic quota needs to be examined and approved.
At that time, after obtaining the relevant qualifications approved by the securities regulatory authority, the overseas investors only need to entrust the domestic custodian bank with relevant registration in accordance with regulations, and open special fund account and follow-up fund exchange business in the custodian bank with the business registration certificate issued by the State Administration of Foreign Exchange. Wang Chunying said.
In addition to lifting quota restrictions, RQFII pilot countries and regions will also be lifted.
Wang Chunying said that the abolition of restrictions on RQFII pilot countries and regions will help to further facilitate global investors to invest in domestic securities markets with RMB, broaden the channels for the use of RMB abroad, and enhance the depth and breadth of Chinas financial market opening.
It can be predicted that the abolition of QFII and RQFII investment quota restrictions will further support foreign investors to participate in the domestic market, effectively support the mainstream international index to improve the weight of domestic stock and bond markets in an orderly manner, and enhance the international recognition of Chinas capital market.
Facilitating the Allocation of Domestic Assets by Overseas Investors
Pan Gongsheng, deputy governor of the Peoples Bank of China, said at the 11th Lujiazui Forum (2019) that the reform of QFII and RQFII should be promoted, the scope of investment should be expanded, and the quota management of QFII and RQFII should be moderately relaxed or even abolished.
For overseas investors, the amount required for filing and approval has always been a restriction and obstacle. When the inter-bank bond market opened to foreign investors in 2016, the Peoples Bank of China and the Foreign Exchange Bureau no longer set up the management of qualification examination and approval and quota restriction, and achieved very good results. The abolition of QFII and RQFII quota restriction means that it will be more convenient for foreign investors to invest in bonds and stocks in China.
Although it seems that there will be a lot of incremental funds if the quota is lifted, these funds will not be in place in one step and will not have a great impact on the stock market. The head of the Capital Account Management Department of the Foreign Exchange Administration stressed that the market value of domestic circulating stocks held by foreign investors currently accounts for 3.8% of the total market value, and the proportion is relatively low. At the same time, the index is a gradual process, and foreign investors will gradually allocate. The impact on the stock market will not be particularly large, not to say that there will be a large inflow of funds in a short time.
The head of the Capital Accounts Management Department of the Foreign Exchange Administration said: We hope that long-term capital from abroad will be invested, such as pensions.
Foreign Capital Continuously Accelerates Entry
At present, cross-border securities investment has occupied a very important position in Chinas balance of payments pattern.
According to Wind data, as of September 9, 2019, Shanghai, Shenzhen and Hong Kong Tongs northbound capital had purchased 794.126.89 billion yuan.
In 2018, Chinas total revenue and expenditure under cross-border securities investment (inflow + outflow) amounted to US$213.7 billion, accounting for 25% of the total revenue and expenditure under the whole capital account, which increased by 16 percentage points compared with 2002. In the first half of 2019, Chinas non-reserve financial accounts continued the trend of net inflow, in which foreign investors increased their holdings of Chinas securities by more than $50 billion.
However, from the international comparison of the proportion of foreign capital in the capital market, the inflow of securities investment funds still has great potential and space. According to preliminary statistics, foreign capital holds 3.8% of the total market value of domestic circulating stocks and 2.2% of the total market value of domestic RMB bonds, which is much lower than the level of foreign capital holdings in some emerging market economies.
Looking forward to the future, with the major index compiling organizations such as Mingsheng Company and Fushi Russell Group bringing Chinese A shares and bonds into their mainstream international indexes and increasing their weights, it will bring sustained capital inflows to Chinas securities market. After the abolition of the investment quota restriction for qualified foreign investors, the degree of facilitation of cross-border securities investment has been further improved, and more long-term capital is expected to be brought abroad.
The SAFE stressed that while continuing to promote the opening of capital account, it will also strengthen the macro Prudential + micro supervision two-in-one management framework, guard against the risk of large cross-border capital inflows and outflows, and effectively maintain the stability of the foreign exchange market.
QFII holds 20 A shares with the highest stock value (as at 30 June 2019)
Data source: wind
Source: Liable Editor of China Securities News: Liu Song_NBJ9949