Chinese regulators on Monday announced steps to boost overseas investor access to China's equity and bond markets under the country's five-year-old renminbi qualified foreign institutional investor program.
The reforms largely echoed the expansion of China's 13-year-old qualified foreign institutional investor program unveiled in February, replacing a system requiring foreign investors to apply for successive quota allocations with one awarding money managers and asset owners an initial allotment, tied to the scale of assets under management, under a registration system.
Under the new RQFII rules that went into effect this week, a foreign money manager or asset owner's initial allotment amounts to $100 million plus the sum of 20 basis points multiplied by the three-year average of the applicant's AUM, minus the amount of QFII quota already obtained.
That formula would give money managers with $1 trillion in AUM an initial allotment of $2.1 billion, provided they had no QFII quotas.
The broad set of RQFII reforms brings that program largely in line with China's QFII program, although the former's more liberal capital repatriation rules could make RQFII the more attractive of the two for many investors, said Charles Salvador, director, investment solutions with Z-Ben Advisors, a Shanghai-based financial markets consultancy in China.
For example, while open-end funds can do daily repatriation under both systems, under QFII there's still a three-month lockup period before investors can withdraw capital from the country, and a rule limiting each withdrawal to 20% of the previous year's AUM, noted Mr. Salvador.
By contrast, under this week's updated rules, a foreign investor using the RQFII program would be able to repatriate its entire investment — a “big difference,” he said.