Promoting the Opening of Financial Markets to Foreign Exchange Bureaus Big Recruitment is Good for A Shares in the Long Term

category:Finance
 Promoting the Opening of Financial Markets to Foreign Exchange Bureaus Big Recruitment is Good for A Shares in the Long Term


Wang Chunying, spokesman and chief economist of the State Administration of Foreign Exchange, said in reply to a reporters question that the complete abolition of the investment quota restriction for qualified foreign investors was a major reform for the State Administration of Foreign Exchange to implement the decision-making plan of the Central Committee of the Party and the State Council, deepen the reform and opening-up of the financial market and serve the new pattern of comprehensive opening-up. It is a reform measure initiated by foreign investors to further meet the investment demand of Chinas financial market.

Since 2002, China has implemented the system of qualified foreign institutional investors. Over the past 17 years, QFII has developed from scratch, from small to large, and the reform has been deepened and continuously promoted. The landing of this regulation means that in the future, foreign institutional investors with corresponding qualifications can independently remit funds to carry out securities investment in accordance with the regulations only through foreign exchange registration, and the convenience of foreign investorsparticipation in domestic financial markets will be greatly enhanced again.

Restrictions on RQFII Pilot Countries and Areas were Abolished

The QFII system is one of the most important systems in the opening of Chinas financial market. Since the implementation of QFII system in 2002 and RQFII system in 2011, more than 400 institutional investors from 31 countries and regions have invested in Chinas financial market through this channel.

Previously, the regulatory framework of the QFII and RQFII system was that the Peoples Bank of China was mainly responsible for the promotion of RQFII pilot countries and regions, the CSRC was mainly responsible for QFII/RQFII Qualification Access and investment management, and the State Administration of Foreign Exchange was mainly responsible for QFII/RQFII investment quota and exchange management.

The so-called Qualified Foreign Institutional Investor (QFII) system is a transitional measure for a country to introduce foreign capital and open capital market to a limited extent without fully convertible currency and fully open capital account. South Korea, India, Brazil and other countries and regions have implemented this system successively.

In 2002, China implemented the system of qualified foreign institutional investors. After being approved by the CSRC and within the limits approved by the State Administration of Foreign Exchange, the overseas fund management institutions, insurance companies, securities companies and other asset management institutions that meet the requirements shall remit foreign exchange funds, entrust domestic commercial banks as trustees to custody assets and entrust domestic securities companies to handle them in China. Securities trading activities.

The RMB Qualified Foreign Institutional Investors (RQFII) system allows qualified foreign institutional investors to invest in the domestic capital market in RMB within a certain amount of transitional measures.

In 2011, China implemented the pilot project of RMB Qualified Foreign Institutional Investor System. After the Peoples Bank of China has submitted to the State Council for approval, it will determine the total quota of RQFII pilot countries and regions. Institutional investors in pilot countries and regions, after being approved by the CSRC and within the quota approved by the State Administration of Foreign Exchange, will remit RMB funds, entrust domestic commercial banks to custody assets as custodians and entrust domestic certificates. Securities companies handle securities trading activities in China.

In fact, after deepening the reform of foreign exchange management in related fields, China cancelled the QFII/RQFII related exchange restrictions in 2018. At present, there is only a limit on the amount of investment in foreign exchange management.

Wang Chunying said that the abolition of QFII and RQFII investment quota restrictions can 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.

In addition, the RQFII pilot countries and regions also abolished the investment quota restrictions for qualified foreign investors. Qualified overseas institutions from all over the world are welcome to use overseas RMB for domestic securities investment. The abolition of restrictions on RQFII pilot countries and regions will further facilitate foreign investors to invest in domestic securities markets and enhance the depth and breadth of Chinas financial market opening. Wang Chunying said.

The head of the Capital Accounts Management Department of the Foreign Exchange Administration told the First Financial and Economic Journalist that at this time, it was mainly based on long-term considerations to abolish the limit on the investment quota of qualified foreign investors in an all-round way. In the long run, quota limits are a little like Monkey Kings mantra to investors. Therefore, the abolition of quota restrictions is more a gesture of facilitation and openness, making it more convenient for foreign investment institutions to invest in China.

Seventeen Years of QFII Reform

Opening to the outside world, steadily advancing, with a clear banner!

Next step, capital account opening will focus on promoting the opening of a few non-convertible projects, improving the degree of convenience of convertible projects, increasing the degree of opening up of trading links, and building a high level of open economy. Pan Gongsheng, Director of the State Administration of Foreign Exchange and Vice President of the Peoples Bank of China, made it clear at the 2019 China Development Forum held in March.

As an important part of the open economy, capital account openness is closely related to the two-way opening of financial markets. In recent years, in promoting the opening of capital account, foreign exchange bureau has taken a series of important reform and opening-up measures, focusing on promoting the opening of financial market.

Specifically, it includes: achieving a high level of opening-up of the domestic inter-bank bond market; supporting the opening-up of specific commodity futures; supporting the interconnection mechanisms of Shanghai, Shenzhen, Hong Kong, bond, mutual fund recognition, China and Japan ETF, issuing depository receipts cross-border fund management measures, supporting the landing of Huluntong and Kechuang Boards; Employees directly participate in equity incentive plans of Listed Companies in China.

As for the reform of foreign exchange management in QFII/RQFII system, the SAFE, in conjunction with relevant departments, has revised the relevant provisions of foreign exchange management three times (2009, 2016 and 2018). It has continuously deregulated and simplified the procedures in terms of quota approval and fund exchange.

On November 5, 2002, China formally promulgated the Interim Measures for the Administration of Domestic Securities Investment by Qualified Overseas Institutional Investors, and the first transaction was made in July 2003. Since then, with the continuous advancement of capital account convertibility, the channel of qualified foreign institutional investors has been continuously open and optimized.

On September 29, 2009, the Foreign Exchange Administration issued Regulations on the Administration of Foreign Exchange for Domestic Securities Investment by Qualified Overseas Institutional Investors (QFII). The maximum amount of investment applied by a single QFII increased to $1 billion.

In February 2016, the SAFE further relaxed QFII access conditions and simplified the approval process. The core is no longer to set a unified upper limit of investment quota for a single institution, but to take a certain proportion of the assets scale or the assets scale managed by the institution as the basis for obtaining the investment quota (basic quota). At the same time, the management of quota examination and approval should be simplified. The application for quota within the basic quota of QFII institutions shall be filed and managed; if the application exceeds the basic quota, the foreign exchange bureau shall examine and approve it.

In the eyes of market analysts, this is a measure to expand capital inflows by regulators in accordance with the balance of payments situation. In the long run, it is to facilitate investment and promote capital account convertibility in an orderly manner.

The latest QFII/RQFII foreign exchange management reform was in June 2018. In order to implement the new requirements of comprehensively expanding reform and opening up, the foreign exchange bureau further improved QFII/RQFII foreign exchange management.

The reform measures include: first, abolishing the 20% proportion limit of QFII capital remittance; second, abolishing the requirement of QFII/RQFII principal lock-in period; third, allowing QFII/RQFII to carry out foreign exchange hedging to hedge the exchange rate risk of domestic investment; fourth, optimizing the quota management process, determining the basic quota according to the concept of macro-prudential management, and applying for quota at the same time. Only those within the basic quota need to be filed, and those beyond the basic quota need to be examined and approved.

Long-term Benefits for A Shares

With Chinas stock market and bond market being included in many important global indices, the allocation demand of foreign capital in Chinas financial market is growing. Cross-border securities investment has occupied a very important position in Chinas balance of payments pattern.

What will be the impact on Chinas foreign exchange receipts and expenditures by abolishing the investment quota restriction for qualified foreign investors?

The head of the Capital Accounts Management Department of the Foreign Exchange Administration said that although the quota was lifted, it would appear that there would be a lot of incremental funds, but it would not have a great impact on the stock market. On the one hand, because the funds will not be in place in one step, on the other hand, because of the overall low proportion of foreign ownership.

At present, 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. The person in charge said.

In fact, while Chinas financial market is opening to the outside world, the international communitys recognition of Chinas capital market is also growing. In recent years, major index compilers around the world have successively incorporated Chinese A shares into their international stock index and increased their weights, which will bring sustained capital inflows to Chinas securities market.

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.

In addition, how to guard against the risk of large cross-border capital inflows and outflows after the full abolition of the investment quota limit for qualified foreign investors?

First Financial Journalist learned that the complete abolition of the investment quota limit for qualified foreign investors does not mean that the risk is out of control. Wang Chunying said that next step, the State Administration of Foreign Exchange will immediately begin to revise the Regulations on the Administration of Foreign Exchange for Domestic Securities Investment of Qualified Foreign Institutional Investors (State Administration of Foreign Exchange Announcement No. 1, 2018) and other relevant regulations, so as to make it clear that the investment quota of a of a single QFII will no longer be filed and approved. At that time, after obtaining the relevant qualifications approved by the securities regulatory authorities, foreign investors shall entrust domestic custodian banks with relevant registration as required, and open special fund accounts and follow-up fund exchange businesses in custodian banks on the basis of business registration certificates issued by the State Administration of Foreign Exchange. As Pan Gongsheng said at the press conference of the Second Session of the Thirteenth National Peoples Congress, In 2018, Chinas overall balance of payments will be basically balanced. From a long-term perspective, Chinas current account will remain in a reasonable range of basic balance, and the inflow of capital account will increase. Looking ahead, the cross-border securities investment facilitation will be further enhanced after the abolition of investment quota restrictions for qualified foreign investors, which is expected to bring more long-term overseas capital. The State Administration of Foreign Exchange (SAFE) said that while continuing to promote the opening of capital account, it will strengthen the macro prudence + 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. Source: First Financial Responsibility Editor: Wang Xiaowu_NF

First Financial Journalist learned that the complete abolition of the investment quota limit for qualified foreign investors does not mean that the risk is out of control. Wang Chunying said that next step, the State Administration of Foreign Exchange will immediately begin to revise the Regulations on the Administration of Foreign Exchange for Domestic Securities Investment of Qualified Foreign Institutional Investors (State Administration of Foreign Exchange Announcement No. 1, 2018) and other relevant regulations, so as to make it clear that the investment quota of a of a single QFII will no longer be filed and approved. At that time, after obtaining the relevant qualifications approved by the securities regulatory authorities, foreign investors shall entrust domestic custodian banks with relevant registration as required, and open special fund accounts and follow-up fund exchange businesses in custodian banks on the basis of business registration certificates issued by the State Administration of Foreign Exchange.

As Pan Gongsheng said at the press conference of the Second Session of the Thirteenth National Peoples Congress, In 2018, Chinas overall balance of payments will be basically balanced. From a long-term perspective, Chinas current account will remain in a reasonable range of basic balance, and the inflow of capital account will increase.

Looking ahead, the cross-border securities investment facilitation will be further enhanced after the abolition of investment quota restrictions for qualified foreign investors, which is expected to bring more long-term overseas capital. The State Administration of Foreign Exchange (SAFE) said that while continuing to promote the opening of capital account, it will strengthen the macro prudence + 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.