Published On: Fri, Dec 2nd, 2011

China Speeds up Preparation of RQFII Scheme

The preparation for RMB Qualified Foreign Institutional Investors (RQFII) scheme has sped up following the slowdown of hot money inflow in October, said sources with the China Securities Regulatory Commission(CSRC).

Relevant government departments, including the CSRC, the central bank and the State Administration of Foreign Exchange, have reached agreement on the RQFII mechanism, which allows qualified investors to raise money in RMB from the Hong Kong market and invest in domestic A-share and bonds market, said the sources.

The RQFIIs will be allowed to invest in mainland securities markets with an initial size of 20 billion yuan (3.15 billion U.s. dollars), Vice Premier Li Keqiang announced during his Hong Kong visit in August.

Preparation for the RQFII scheme has picked up pace as yuan funds stemming from foreign exchanges dropped in October on a month-on-month basis for the first time in nearly four years, said sources.

The figure decreased by 24.9 billion yuan last month from September, said the People’s Bank of China (PBOC), the country’s central bank.

Previously, the inflow of hot money put great pressure on the country’s foreign currency control and thus the preparation for the RQFII scheme has been going slowly.

The new mechanism is expected to cast positive impact on China’s A-share market in the long run, analysts said. But they pointed out that the initial 20-billion-yuan quota is only a “small” amount, and the A-share market will not benefit much from it in the short term.

However, the launch of the RQFII mechanism opens a window for overseas investors to purchase stocks in the A-share market. As one of the investment channels, the RQFII program would reduce investment barriers and attract more funds to the Chinese mainland’s capital market.

Statistics show that the amount of yuan-denominated savings in Hong Kong reached 622.2 billion yuan at the end of September, a sharp rise from 314.9 billion yuan in 2010.

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