China expands investment scope for foreign investors under combined scheme

SHANGHAI/BEIJING: China moved to further ease foreign access to its capital markets on Friday, officially combining two major inbound investment schemes and broadening the scope for foreign institutional investment.

The finalised rules, published by The China Securities Regulatory Commission (CSRC), the central bank and the foreign exchange regulator, combine the Qualified Foreign Institutional Investor (QFII) scheme and its yuan-denominated sibling, RQFII. The schemes channel foreign capital into Chinese stocks and bonds. The new rules, which will take effect on Nov. 1, would also expand investment scope under the combined scheme.

The rule changes "will fundamentally relieve major bottlenecks for foreign institutional investors seeking to invest in China" said Thomas Fang, head of China Global Markets at UBS.

The regulations "have the potential to not only galvanize investor interests in China, but also broaden (the) investor base in using financial and hedging instruments in China," Fang said.

China is accelerating reforms and the opening-up of its capital markets as part of efforts to promote global use of the yuan currency while trade and diplomatic ties with the United States remain strained.

The announcement coincides with FTSE's decision earlier in the day to include Chinese government bonds in its flagship World Government Bond Index.

The rules also lower the threshold for overseas applicants and simplify the vetting process.

Investors will be allowed to buy securities traded on Beijing's New Third Board and invest in private funds or conduct bond repurchase transactions.

In addition, foreign institutions will also have access to derivatives, including financial futures, commodity futures and options, according to the new rules. "The move will encourage more medium- and long-term funds, including hedge funds and alternative investment funds, to enter the Chinese market directly," said Fang at UBS. The draft rules were published in January 2019.