In early September 2019, the Chinese State Administration of Foreign Exchange (SAFE) announced the removal of investment quotas for the Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) schemes. This will provide Irish domiciled funds with increased scope to invest in China’s financial markets.
Investing in China
The QFII and RQFII schemes were established in 2002 and 2012 respectively to encourage foreign investment in China’s financial markets. Since the launch of the schemes more than 400 institutional investors from 31 countries and regions around the world have invested in China's financial markets. Other initiatives, such as the Shenzhen-Hong Kong Stock Connect and the China Bond Connect Schemes, which have been approved by the Central Bank of Ireland, have also opened up opportunities for Irish domiciled funds.
Opportunities for Irish funds
In December 2016, Ireland was granted a quota of RMB 50 billion on the RQFII scheme which is accessible via applications made by Irish fund management companies. The proposed reform will remove the quota entirely.
According to SAFE, the regulations will soon be revised, removing any requirement on foreign institutional investors to apply for QFII and RQFII quotas and for those investors with an existing quota, they will not be limited to that quota.
In future, foreign institutional investors meeting the regulatory qualifications will only need to go through the RQFII registration procedure through a domestic custodian bank. This proposed process provides for a more convenient mechanism for Irish funds to access China’s bond and stock market.
What does this mean for the future?
The increased accessibility of these markets for Irish and other international investors will enhance the attractiveness of investment in China.
In announcing the reforms, SAFE reiterated its commitment “to continue to deepen the reform of foreign exchange administration, take effective measures to expand opening up, support foreign investors to invest in domestic financial markets, and enhance the facilitation of cross-border investment and financing.”
The reform presents an opportunity for Irish funds with pre-existing investments in China to invest further beyond the 2016 quotas.
The reform also makes it more convenient for Irish fund management companies which have not invested in China to do so. New investors in China will only be required to register as a qualified foreign investor.