In 2003, the advent of QFII marked the opening of Chinas capital market to the outside world. In the 17 years from QFIIs initial need to snatch 10 billion yuan of credit to its complete liberalization, A-share has become a necessary option for foreign investors to allocate globally and an effective choice for foreign investors to hedge risks globally.
Fang Dongming, head of Chinas global financial market department and head of QFII business at UBS, experienced the first order deal of QFII 17 years ago. He used water test to describe the ice breaking of foreign investment at that time, and used in-depth Tour to describe QFIIs departure after the quota was cancelled at this time. Now that it has been opened to a certain extent, foreign investors also hope to travel in depth and invest in China at a deeper level. The landlord made it clear.
For foreign investors, QFII is a window, opening up a new world of investment in China, and its revenue is not poor in the past 17 years; for Chinas capital market, A-share investors pay special attention to this outsider and learn from it. QFII, as a fulcrum of leveraging foreign capital, exerts influence imperceptibly. In the process of opening up, A-share reshapes its investment style, optimizes supervision, restricts listed companies from stopping and resuming trading at will, encourages dividends, strikes hard at counterfeiting and illegal activities, further liberalizes the access of foreign financial institutions, and firmly implements the registration system Step by step in line with the international mature capital market.
At present, QFII bid farewell to the era of quota, when the A-share market is in a new ecology of accelerating opening up and deepening reform. Push China to the core stage of the global market, and help Chinas financial market continue to progress and develop. Said Cai Meizhi, head of Citigroups China securities service department.
Come on, smart long money!
Remove the fence
At present, there are five main channels for foreign investment to enter Chinas securities market, including three direct channels - QFII, rqfii and cibm (i.e. direct investment in inter-bank bond market); Shanghai Shenzhen Hong Kong stock connect and bond connect are generally called indirect channels by foreign investment. In the course of my roadshow for more than ten years, I saw many foreign investment institutions full of expectations for the Chinese market. They knew the development potential of China, but they could not enter because of the previous quota control. Although the application for the quota is not complicated, it will take some time. In addition, in order to meet the corresponding procedures and required documents, additional time should be prepared for the outward remittance, which also brings challenges to the public funds when they are faced with redemption by investors, especially when the exchange rate fluctuates, additional losses may also be caused. Cai Meizhi said. Now these rules have been removed. According to the latest regulations, a foreign-funded institutional investor does not need to report and approve every fund, and the applicant body can file; when remitting earnings, the foreign-funded institution does not need to show tax payment certificate and audit report, which are only needed when liquidating the fund or closing the account in China.
From QFIIs preparation of application materials to receipt of the quota approval, Cai Meizhi expects to shorten the time of 1-3 months and save a lot of time in the export earnings. In the rapidly changing capital market, time is money, and investors are very happy to see such changes.
According to the reporter of economic observer, from the end of last year to this year, when there is still a quota, many foreign institutions are applying for increasing the quota, and some new QFII applicants have emerged.
As of April 2020, QFII has invested US $114.7 billion and rqfii has invested RMB 713.1 billion. From the perspective of quota, the quota of QFII and rqfii is about 30%. Therefore, many investors also dont understand what is the significance of the cancellation of the quota by safe?
Whether there is quota control in the stock market is the starting point for some foreign investors to choose. For example, some foreign government agencies, pension companies, insurance companies, their investment committees stipulate that they cant invest in a limited market - limit of amount or limit of remittance. Therefore, the cancellation of the investment quota by SAFE will have two direct effects: on the one hand, foreign pension funds and other institutions can choose to enter the Chinese market from then on, and on the other hand, it will make overseas investment institutions more confident about the opening of capital projects in China.
With the introduction of QFII new regulations in May this year, the various commitments made by Chinese regulators in the draft for comments last year that overseas investors are anxious to expect will be fulfilled one by one. Cai Meizhi said that this step of opening-up has sent a positive signal to the outside world, especially when the worlds financial market is in turmoil, foreign investors see that the development of Chinas stock market is quite stable, and regulators implement various opening policies on schedule, which also gives investors great confidence.
Past events of quota
The quota of early QFII is very valuable. If safe approves a quota to you, it represents the affirmation of the companys investment and research ability. Li Shaojie, who has long worked in foreign capital management companies, joined Fidelity International 10 years ago and now serves as the general manager of China. At that time, I didnt know how fast and how slowly China would open up its capital market, said Li
Back in 2003, QFII system was launched with great attention. On October 17, 2003, at the Grand Hyatt Oriental Hotel in Beijing, Chinas capital market ushered in a historic moment: Yuan Shuqin, then head of China securities business of UBS, issued the first order of QFII at 10:17 a.m. at the moment, and two minutes later, all four shares purchased in the first order were confirmed to be completed, and QFII officially stepped onto the stage of Chinas securities market.
It was also in this year that several landlords with experience in international investment banking joined UBS, and now they are head of global financial markets and head of QFII business of UBS China. Fang recalled that the whole exchange and all foreign institutions were very excited at that time.
But at that time, overseas investors were actually very limited. On the one hand, China was very cautious about opening up the capital market; on the other hand, foreign investors were also very cautious about whether to enter the Chinese market.
At the beginning of the pilot, the total amount of QFII was 10 billion US dollars. The first batch of QFII was obtained by large international investment banks such as UBS, Goldman Sachs, Citigroup and Nomura Securities. Every year, international investment banks hold the Greater China Investment Seminar for foreign investment, once the number of employees is more than that of investors.
Soon, the enthusiasm of foreign investors for Chinas market grew. By the end of 2006, the amount of US $10 billion was used up. In 2007, China increased its total QFII quota to US $30 billion. In April 2012, QFIIs total investment increased from US $30 billion to US $80 billion. In the same year, 72 QFII institutions were newly approved, with a new approved amount of US $15.803 billion. At the beginning of 2019, safe increased the QFII quota to US $300 billion, and announced the cancellation of the quota limit in September.
At first, the QFII system had many limitations. In the early years, after the approval of foreign capital, the amount needs to be raised within a certain period of time, otherwise it will be recovered. When encountering the 2008 financial crisis, safe will give some institutions a buffer period, but for foreign capital, if they are not familiar with China in the early stage, or have no representative office in China, they often need to travel to Beijing from abroad to communicate with the regulators, which is really inconvenient.
Many kinds and channels of investment in Chinas stock market have puzzled many foreign investors.
Make complaints about Chinas market. Every time I speak, my mouth is dry and my tongue is dry. The current policy orientation is to simplify the investment process and make it easier for investors to invest in the Chinese market.
There are also many foreign capital because of various restrictions on the Chinese market, and finally missed the growth dividend of the Chinese capital market for more than ten years. Wang Jinlong, founder of Haitou global, lamented that because of QFIIs export mechanism, investment period, full position requirements, inability to increase leverage and position adjustment, some foreign institutions finally gave up a shares after a long time of due diligence.
From cold to hot
In the early days, foreign investors had no sustained interest in the Chinese market. For example, the rqfii system was officially launched in 2012, and the pilot company initially carried out a pilot in Hong Kong, using the RMB funds raised in Hong Kong to carry out domestic securities investment business. This mechanism is also designed to leverage RMB assets overseas. As of the end of September of that year, RMB deposits in Hong Kong amounted to 622.2 billion yuan.
To Fang Dongmings surprise, by the end of the year, there was a big market in the whole emerging market. A shares were in short supply, but QFII and rqfii had quota control at that time. Overseas investors were very interested. The valuation of this ETF product was 3 to 4 percentage points higher than its potential value, and the quota of 20 billion in the whole Hong Kong region was sold out. Foreign institutional investors also communicate with them, hoping to sell some of their positions in the market. They also actively cooperate with each other to smooth the contradiction between supply and demand in the market.
After years of cultivation, now the overseas investors participating in the conference are full of fields, and thousands of institutional investors are attracted.
What has puzzled many foreign banks for a time is that foreign investment actually has a positive impact on the securities market. Many foreign investment ideas, mature trading technology, and complex strategic models all drive the upgrading of the capital market in emerging countries. Foreign investment participation in other new market countries and regions is also very high, but why is China opening up so slowly?
Cai Meizhi began to contact QFII business in 2007. At the beginning, I also felt confused. Later, I gradually understood that Chinas market volume is very large and complex. Every single change can bring unpredictable impact. The flow of foreign capital is not only linked with the financial market dominated by stocks and bonds, but also affects the exchange rate market, other capital projects or investor protection issues. Therefore, the supervision is very cautious in promoting the reform of capital market, and consensus needs to be reached between the supervision. This will take time, but the direction of opening up has not changed.
Chinas regulatory firm stance on opening up has also made foreign investors more confident in entering the Chinese market. The chairman of the CSRC, Yi Huiman, said in the first show in 2020 on May 15 that the unswerving development direction of the capital market is to implement high-level opening up and promote the optimal allocation of capital elements in domestic and foreign markets and at a higher level.
The expansion of Fidelity International in China also coincides with the gradual opening of Chinas capital market. Fidelity International is the first group of foreign capital management companies to distribute the Chinese market. In 2004, Fidelity International set up its first representative office in Shanghai, but until 2007, it had little business in China.
When the value investment and institution oriented foreign investment meet the speculative and retail Chinese market at that time, there are some cases of acclimatization.
Fang Dongming also noted that several years ago, when he went to New York to meet American investors, the investment managers who took part in the roadshow took English research papers. Now more and more people take Chinese research papers, which also reflects that these foreign-funded institutions are also recruiting more investment and research people who are more familiar with the Chinese market.
Reshape the market
According to the reporter, foreign investment institutions often enter the market according to their own investment steps, not necessarily through QFII mechanism at this moment, and each investment manager will choose independently due to quotation, settlement method, etc. But generally speaking, most foreign investors are optimistic about China in the long run.
The investment habits of foreign investors and domestic retail investors are very different, and even the habits of domestic institutional investors are very different. They are very cautious and cautious beyond your imagination.
Cai Meizhi said that a decision to enter the market may take as long as five years, and will experience a complex decision-making process.
This part of prudent and long-term smart money imperceptibly changes the atmosphere of the Chinese market. In the view of foreign capital, A-share is a market of retail speculation, with high valuation, irrationality, inadequate information disclosure and imperfect corporate governance. The main reason why Chinese regulators try to introduce foreign capital is that they expect the mature style of foreign investment to guide A-share to connect with the international capital market.
From QFIIs entry into China to the opening of Shanghai Shenzhen Hong Kong stock connect, many A-share investors are keen to pay attention to foreign capital flows, research and analysis, stock selection and position style. At present, there are more and more people talking about value investment in the investment circle, and they are more and more sure about the long-term fund represented by pension.
Foreign capital entering Chinas market through QFII channels often takes a long view. According to the reporter, a lot of fund managers are looking for a contract in three or five years. Investment managers dont need to pay too much attention to the short-term withdrawal, dont need to look at the net value every day, and can stick to their investment philosophy.
At present, foreign investment has formed a situation of tripartite confrontation with public offering and insurance funds. Since then, the market value of a shares has increased from about 2% - 3% to about 6% - 7% now. However, compared with 15% - 30% in Taiwan, South Korea and other countries and regions, the proportion of foreign capital to a shares is still low.
Compared with QFII, Xie believes that the launch of Shanghai Shenzhen Hong Kong stock connect in 2014 is the real game changer. Shanghai Shenzhen Hong Kong stock connect has made the QFII mechanism more convenient for foreign investors, and MSCIs inclusion in China means that China is an investable country, and Chinas market meets international standards in terms of access conditions. In the later development, these mechanisms are also complementary, and the popularity of Shanghai Shenzhen Hong Kong stock connect is also promoting the reform of QFII mechanism.
Shanghai Shenzhen Hong Kong stock connect has gradually replaced QFII and rqfii as the main channel for foreign investment in a shares. At present, about 30% of foreign investment in a shares through the latter. In contrast, this channel is more free, many hot money (short-term funds) to flow into a shares.
Now, the long-term foreign investment has also enjoyed the dividend brought by Chinas rapid economic growth. According to Changjiang Securities data, the average annual yield of QFII was as high as 22.43% from the beginning of 2005 to March 23, 2018. According to the reporter, in the early years, foreign capital entering the Chinese market has gained several times of the income. In the eyes of institutional personage, those who lose money are unqualified foreign capital.
Li Shaojie said QFII is a milestone in the process of opening up Chinas capital market. On the one hand, QFII brings in foreign investment to give global investors the opportunity to invest in China. On the other hand, it also gives domestic regulators more channels to understand foreign investment. As a communication platform, QFII also provides a good reference for the mutual fund recognition, Shanghai Shenzhen Hong Kong stock connect, cibm and other mechanisms launched by Chinas regulatory authorities.
Cai Meizhi also believes that the emergence of QFII broadens the vision of regulators. Its like we have not only roads for pedestrians, but also viaducts for cars, so that those with better technology can run faster. This will expand the size and diversity of the whole market, push China to the core stage of the global financial market, and help the continuous progress and development of Chinas financial market. Cai Meizhi said.
Now, foreign capital has developed from testing A-share to the stage of in-depth travel in this market.
Its like the development of a new tourist attraction. The first concern is whether to go by plane, boat or train. Now its opened to a certain extent, and foreign investors also hope to have a deeper investment in China. Fang Dongming said.
According to the reporter, mature investors, the type of investment is very broad, QFII is also more able to meet the needs of such investors. Before that, the CSRC has begun to relax the investment varieties of QFII channels, including private placement, commodities, futures, etc. Many foreign-funded institutions expect this new regulation to come into effect this year.
From a macro perspective, foreign investors generally believe that the investability of Chinas capital market and the feasibility of integrating into its global capital asset allocation are becoming stronger and stronger. Whether from the perspective of risk diversification or absolute return, Chinas capital market is the biggest investment opportunity.
In the future, we will still see systematic growth in the allocation of foreign investment to Chinas market. Fang Dongming said that if Chinas accession to the WTO in 2001 ushered in a golden decade of trade, then with the launch of rqfii in 2012 as an opportunity, and the establishment of the Shanghai Shenzhen Hong Kong stock connect system in 2016, Chinas capital market ushered in an open golden decade. This growth will continue for at least two or three years in the future. When the proportion of foreign investment reaches 20% - 30%, it is not only possible for foreign investment to enter, but also possible for foreign investment to leave. Is there the ability and mentality of the Chinese market to allow foreign investors to enter and leave freely? This is what needs to be prepared in the next two or three years. Cai Meizhi said that QFIIs participation in the A-share market allows Chinese regulators to design systems that take more into account the investment of legal entities, think about international market management, broaden the vision of business supervision, and on this basis, consider how to meet the needs of various investors, so as to improve the construction of the whole market. QFII is a fulcrum to leverage trillions of foreign capital, so as to connect with the international market, reshape a shares, and push the Chinese market to the world stage. Source: Economic Observer Author: Zheng Yizhen editor in charge: Wang Xiaowu_ NF
In the future, we will still see systematic growth in the allocation of foreign investment to Chinas market. Fang Dongming said that if Chinas accession to the WTO in 2001 ushered in a golden decade of trade, then with the launch of rqfii in 2012 as an opportunity, and the establishment of the Shanghai Shenzhen Hong Kong stock connect system in 2016, Chinas capital market ushered in an open golden decade. This growth will continue for at least two or three years in the future. When the proportion of foreign investment reaches 20% - 30%, it is not only possible for foreign investment to enter, but also possible for foreign investment to leave. Is there the ability and mentality of the Chinese market to allow foreign investors to enter and leave freely? This is what needs to be prepared in the next two or three years.
Cai Meizhi said that QFIIs participation in the A-share market allows Chinese regulators to design systems that take more into account the investment of legal entities, think about international market management, broaden the vision of business supervision, and on this basis, consider how to meet the needs of various investors, so as to improve the construction of the whole market. QFII is a fulcrum to leverage trillions of foreign capital, so as to connect with the international market, reshape a shares, and push the Chinese market to the world stage.