As the country has been taking bold steps to open its financial sector, the quotas have become obsolete.
On the evening of May 7, the People’s Bank of China and the State Administration of Foreign Exchange issued the ‘Regulations on the Management of Domestic Securities and Futures Investment Funds of Foreign Institutional Investors.’ The document clarified and simplified the requirements of foreign institutional investors, further facilitating their participation in China’s financial market. There are six points that need attention.
► Implement the cancellation of the management requirements for domestic securities investment quotas for qualified foreign institutional investors and CNY qualified foreign institutional investors (referred to as qualified investors) and implement registration management for cross-border capital remittance and exchange of qualified investors.
► Carry out integrated management of local and foreign currencies, allowing qualified investors to independently choose the currency and timing of remitted funds.
► Substantially simplify the procedures for remittance of domestic securities investment income of qualified investors, cancel the requirements for materials such as special investment income audit reports and tax filing forms issued by Chinese certified public accountants, and replace them with tax payment commitment letters.
► Remove the limitation on the number of custodians, allow a single qualified investor to entrust multiple domestic custodians, and implement the main reporter system.
► Improve the foreign exchange risk and investment risk management requirements for qualified investors' domestic securities investment.
► The People's Bank of China and the State Administration of Foreign Exchange strengthened supervision during and after events.
Besides, purchase restrictions of QFII and RQFII are canceled. For qualified investors who only have QFII qualifications to remit RMB for domestic securities and futures investment, or only qualified investors who have RQFII qualifications to remit foreign currencies for domestic securities and futures investments, there is no need to repeatedly apply for new products or business codes. The custodian may follow the original product or business code of the qualified investor, open the corresponding account for it, handle the exchange of funds and declare the balance of payments in accordance with the requirements of the new regulations.
For qualified investors who already have both QFII and RQFII qualifications, the use of their products or business codes follows the original method.
In fact, since the opening of the Shanghai-Hong Kong Stock Connect in 2014, foreign investors have mainly bought A-shares through the Connect channel. Wind data shows that as of May 6, Northbound funds hold 2061 A-shares in total, with a market value of positions as high as CNY 1.48 trillion, far exceeding QFII holdings.
Hence, the short-term impact may be limited as the scale of the northbound capital has greatly exceeded QFII and RQFII. In a short period of time, a large amount of capital is unlikely to flow into the Chinese capital market.
In the long term, the proportion of A-shares included in various international indexes continues to increase, and the valuation of the A-share market has been relatively low, so the willingness of foreign capital to enter the Chinese capital market will continue to increase.