24 May 2019
GF International's Nathan Lin sees no immediate threat to Hong Kong's prime position in the offshore RMB market.
GF International's Nathan Lin sees no immediate threat to Hong Kong's prime position in the offshore RMB market.

HK will keep its offshore RMB crown, says GF Int’l

Hong Kong is well placed to maintain its position as the prime offshore hub for the Chinese currency as the city has more experience in the business than rivals such as Singapore, according to GF International Investment Management Ltd, a renminbi qualified foreign institutional investor (RQFII).

“RQFII [scheme] was born in Hong Kong… the city has the edge in terms of experience,” Nathan Lin, chief executive of GF International, told EJ Insight. Compared to Hong Kong, places like Singapore and Taiwan may not do so well in the renminbi business despite RQFII quotas from the Chinese government, he said.

Hong Kong has the largest pool of offshore renminbi. The central government will strive to channel more of the funds to the mainland capital market and prevent the money from going elsewhere, Lin said in an interview.

In mid-October, China and Britain agreed on 80 billion yuan (US$13.1 billion) of quota under the RQFII scheme. The approval given to London marked the first time the program was expanded beyond Hong Kong. Singapore followed on the heels of London, as it was officially announced in the same month that the Lion City will obtain 50 billion yuan worth of quota under the scheme. 

Earlier, the China Securities Regulatory Commission (CSRC) said in January that it will accept Taiwan’s request for a separate RQFII investment quota of 100 billion yuan. The actual allocation, however, is yet to take place. Meanwhile, Vice Minister of Finance Zhu Guangyao {朱光耀} said late last month that China would be happy to see Paris also become an offshore RMB trading center.

However, Lin said some “ridiculous” regulatory hurdles exist in some of these wannabe offshore yuan hubs, while Hong Kong has fully embraced the new business.

“On one hand they applaud the RQFII scheme, but they formulate some policies against mainland China behind the doors. The road will of course be bumpy,” he said, without elaborating.

GF International is a wholly-owned subsidiary of GF Fund Management Co. Ltd, the second largest active equity manager in the mainland. The Hong Kong-based investment arm focuses its business in the Hong Kong and Asian markets.

As Singapore and London will become the next offshore yuan hubs, Lin said his firm will seek to expand its operations into the two places to capture the growing potential for renminbi business there.

He said it is possible for London to become the largest market for renminbi once the yuan becomes freely convertible.

“If not as attractive as Hong Kong, London will be the biggest offshore renminbi center… given its position as a euro dollar center,” Lin said.

Free RMB convertibility

Early this month, People’s Bank of China governor Zhou Xiaochuan {周小川}} called for an increase in the qualifications and quotas for QDII and QFII participants, and said administrative approval procedures for the two programs will be eliminated “when conditions are ripe”.

QDII refers to the qualified domestic institutional investor program, which allows eligible Chinese entities to invest in overseas markets.

Lin said he agrees with Zhou’s words, and added that he hopes the China market will become more open and transparent soon.

“Within the next six months, we will see something very different… the market will be more open in some ways, investors will have more choices or alternatives,” he said.

But for the full opening of the capital account, he believes free convertibility of the yuan will happen within a decade.

Giving the policy initiatives on various fronts, including the RQFII quota given to Singapore, London and most recently, Paris, Lin said he has full confidence that China will open up its capital account in a decade. The RQFII scheme is a policy to advance the internationalization of the renminbi, he noted.

Meanwhile, he expects the so-called RQFII2 scheme, which allows Chinese individual investors to invest overseas, to be implemented within next year.

Fixed-income mandates

GF International has obtained three batches of RQFII quota from Beijing from late last year to July this year, with 800 million yuan in each quota. Lin said the firm is now using the first quota to issue a bond fund.

“It will be used to help foreign investors like those from Korean or Taiwan,” he said.

While some RQFII are eligible to get up to 50 billion yuan in a single quota, Lin pointed out that some of them are large exchange traded funds (ETFs) which have been based in Hong Kong since the RQFII scheme established in 2011.

He said GF International does not have any plan to apply for further quota as of now, as it needs to use up the existing quota first.

According to official regulations, an RQFII quota has to be used within six months after the investment quota is approved.

– Contact the reporter at [email protected]


EJ Insight reporter

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