
China ends quotas on QFII, RQFII inbound investment schemes
China’s regulator announced it would abolish its QFII and RQFII investment quotas, giving global investors unrestrained access to the country’s capital markets.
Established respectively in 2002 and 2011, the US dollar-denominated Qualified Foreign Institutional Investor (QFII) and its renminbi-denominated sibling RMB Qualified Foreign Institutional Investor (RQFII) are the two main channels by which foreign investors can invest in China’s equity and bond market.
Private equity firms were permitted to apply for licenses under QFII in 2012, when the China Securities Regulatory Commission (CSRC) loosened restrictions. This allowed institutions with $500 million under management to qualify for a QFII license. The previous threshold was $5 billion.
Removal of the quotas gives PE firms more flexibility to efficiency buy into domestically listed companies, especially in instances where the investors take significant minority or control stakes. The new rule will also open geographic access to RQFII, which was previously restricted to investors in certain countries and regions. The regulator did not specify when the changes would take effect.
The move is expected to encourage capital inflow against the backdrop of a year-long US-China trade war, and therefore back up the renminbi’s valuation. China’s currency dropped 3.8% against the US dollar in August, making its biggest monthly fall in more than 25 years.
As many as 292 overseas institutional investors were approved to invest a combined $111.4 billion in Chinese stocks and bonds under QFII as of the end of August. The RQFII approved quotas of RMB693.3 billion ($97.5 billion). Foreign investors held a combined RMB1.68 trillion of Chinese stocks as of the first quarter, close to the total stock holdings of China’s mutual funds.
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