QFII, RQFII Quota Removal Unlikely to Trigger Big Inflows

China has scrapped the quota of its two leading inbound investment programmes, but the move appears unlikely to give its onshore capital markets a shot in the arm.

China’s widely anticipated removal of the quotas for its two prominent inbound investment schemes has been well-received by the market, but it appears unlikely to spur much larger capital inflows from overseas institutional investors any time soon.

The news of the liberalisation was announced as the global financial market continues to fluctuate under the coronavirus outbreak and the US administration openly ordered its pension funds to halt investment in China stocks.

In a bid to further open up China’s financial market and facilitate foreign investors’ participation in it, Qualified Foreign Institutional Investors (QFII) and Reminbi Qualified Foreign Institutional Investors (RQFII) will no longer need to apply for quota from the State Administration of Foreign Affairs (SAFE), the foreign exchange regulator said last week.

Instead, they shall entrust their main custodians to make a registration with the SAFE. The investors may choose currencies and the timing of remittance into China, and their repatriation of securities investment income are also significantly simplified.

Both QFII and RQFII schemes have gradually lost their appeal after the introduction of the Stock Connect schemes. It has been widely anticipated that a major overhaul is needed to maintain their relevance, Michael Wu, country executive for Greater China… [read more]

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