Scrapped QFII, RQFII Quotas to Lift China’s Markets, Boost Yuan’s Status, Experts Say
Du Chuan
DATE:  May 08 2020
/ SOURCE:  Yicai
Scrapped QFII, RQFII Quotas to Lift China’s Markets, Boost Yuan’s Status, Experts Say Scrapped QFII, RQFII Quotas to Lift China’s Markets, Boost Yuan’s Status, Experts Say

(Yicai Global) May 8 -- China's decision to remove all quotas on its two major inbound investment schemes will be a boon for the country’s bond and stock markets and help to raise further the Chinese yuan’s global importance, according to experts.

Overseas investors will no longer need to apply for quotas under China’s dollar-denominated Qualified Foreign Institutional Investor scheme, QFII, or its yuan-based Renminbi Qualified Foreign Institutional Investor scheme, RQFII, from June 6, the People’s Bank of China and the State Administration of Foreign Exchange said in a joint statement yesterday.

Chinese mainland equities have become increasingly attractive amid loosening regulation and the volatility in global markets introduced by the Covid-19 pandemic. In April, northbound net inflows via Hong Kong's Stock Connect schemes reached CNY53.3 billion (USD7.5 billion). Last year, global index providers such as MSCI and FTSE Russell boosted their inclusion factors of Chinese stocks in their benchmarks, which has catalyzed larger inflows.

“Investing in the Chinese capital markets will become more convenient for qualified foreign institutional investors,” Wen Bin, chief researcher at China Minsheng Bank, told Yicai Global.

Use of the yuan, or renminbi as it is also called, in international payments and settlements has improved after a period of stagnation since 2015, but its share in such payments is still relatively low compared with China's size and importance in the global economy.

The latest step in opening up China’s vast financial markets should also help drive the internationalization of the yuan, Wen added.

Under the new regulations, qualified investors will also be able to freely choose which currency and when they remit money home, while the rules on proving investment income and taxation will also be eased. 

The increased flexibility in the choice of currency and timing is good news for the stock markets, and will improve the market mechanism and structure, Zhao Qingming, an international financial expert, told Yicai Global.

Though the pandemic has affected the whole world, China's capital markets have remained reasonably stable, and one could even say that yuan-denominated securities have begun to seem like safe haven assets, Wen said.

But experts also caution that despite the eased rules, Chinese investors should not expect mainland stock markets to be suddenly inundated with overseas cash. Foreign investors have their own needs and levels of risk appetite and it takes time to become familiar with the market, regulations, and talent pool, said Zhao.

Editors: Liao Shumin, Emmi Laine

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Keywords:   QFII,RQFII,Foreign Capital,China,Stock Markets,Investing,PBOC