Date
26 May 2017
China is stepping up efforts to promote the global use of the renminbi and have it included by the International Monetary Fund as an international reserve currency. Photo: Reuters
China is stepping up efforts to promote the global use of the renminbi and have it included by the International Monetary Fund as an international reserve currency. Photo: Reuters

China eyes looser QFII rules in new yuan push

China will allow capital to be be taken out of a foreign investor scheme on a daily basis, a move seen as an effort to ramp up the globalization of its currency.

The move could enhance the global standing of the yuan and strengthen Beijing’s case to have it included by the International Monetary Fund as an international reserve currency, Reuters reported Wednesday.

At present, foreign asset managers and banks that invest in Chinese stocks and bonds through the US$150 billion qualified foreign institutional investor (QFII) program can only move capital in and out of China on a weekly basis, limiting their ability to manage and value funds.

A new policy being reviewed by the State Council would make the yuan convertible within the limits of the scheme and allow the cross-border flow of billions of dollars worth of investments on a day’s notice.

The reform could also increase the chances of Chinese stocks being represented in global benchmarks such as the MSCI Emerging Market Index.

The daily movement of cash in and out of China is allowed under the smaller, yuan-denominated investor scheme (RQFII) which mainly targets a pool of yuan liquidity in offshore centers such as Hong Kong.

Chinese regulators said the plan was to align the two schemes by allowing daily liquidity, adding the change was expected “imminently”, the report said citing unnamed sources.

Other reforms currently being considered, including lifting an informal US$1 billion cap on individual firms’ investment quotas, could take longer.

As of March, foreign investors such as UBS, Goldman Sachs, Deutsche Bank and Fidelity had invested US$72.1 billion via the QFII program, according to data from China’s currency regulator the State Administration of Foreign Exchange.

The relaxation of the rules governing the investment scheme into China would mark a significant further opening up of the country’s capital accounts.

While foreign investors can now trade Shanghai stocks directly via the recently launched Hong Kong-Shanghai Stock Connect link-up, the quota-based schemes are the only way to buy Chinese bonds and other mainland financial products.

China nearly doubled the value of the 12 year-old QFII scheme from US$80 billion to US$150 billion in 2013, making it the largest of China’s inbound investment programs, compared with RQFII’s US$130 billion and Stock Connect’s US$48 billion.

Only half of the available QFII quota is used, however, due to the weekly liquidity constraint.

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