Trial scheme to extend offshore investment in China

ChinaChina is launching a trial programme to open up Chinese equities and bonds to investments made in offshore renminbi in Hong Kong.

The RMB Qualified Foreign Institutional Investor (RQFII) programme is only open to Hong Kong subsidiaries of mainland asset management and securities firms. The scheme will exist alongside the QFII programme, launched in 2002, which is designed to give offshore asset managers access to China.

Up to 20% of the money invested under RQFII can go into equities and the rest in bonds. The programme is capped at 20 billion renminbi (€2.4 billion).

Shanghai-based consultancy Z-Ben Advisors estimates that Chinese authorities will approve eight applicants in the first awards round, with more licences to be issued during 2012. Hong Kong subsidiaries have been preparing for the regulation since it was announced two years ago and Z-Ben expects the first RQFII quota-backed products to launch in the run-up to the Chinese New Year on 23 January. Large Chinese players such as China Asset Management, E-Fund and Harvest Global are likely to take part.

Early RQFII products should have no problem attracting funds, said Z-Ben. There are enough offshore renminbi reserves in Hong Kong to meet the quota, and Z-Ben thinks attractive returns in the mainland bond market “are well above anything else available to [offshore renminbi] investors”.

“The real question, however, is whether initial momentum will be sustained,” said Z-Ben, adding that the success or failure of mid-sized fund managers will indicate whether the RQFII project is viable in the long term. “A good start may not guarantee an acceptable fundraising follow-on.”

©2011 funds europe