Hang Seng Bank

Hang Seng unit first offshore firm with RQFII quota

Door now open to others, where previously, only HK arms of mainland asset managers qualified

PUBLISHED : Thursday, 01 August, 2013, 12:00am
UPDATED : Thursday, 01 August, 2013, 5:27am

Beijing granted quota under the renminbi qualified foreign institutional investor (RQFII) scheme for the first time to an offshore institution last month.

The move broke the 19-month monopoly of the business by Hong Kong arms of mainland asset managers and is part of the central government's efforts to boost yuan inflows.

The scheme allows offshore asset managers to invest their offshore yuan in the mainland equity and bond markets. The first quota was granted in December 2011.

The State Administration of Foreign Exchange (SAFE) approved 16 billion yuan (HK$20.1 billion) in fresh RQFII quota last month, the third-biggest monthly injection since the scheme was initiated in 2011, it said yesterday.

Hang Seng Investment Management, the investment arm of Hang Seng Bank, which got its RQFII licence in June, obtained a one billion yuan quota from the regulator on Friday, SAFE said. Fourteen mainland asset managers shared the remainder.

The entry of Hang Seng into the RQFII arena could herald fiercer competition for mainland asset managers. Beijing expanded the RQFII qualification to offshore institutions in Hong Kong in March. Last month, it further opened the gates to institutions in London, Singapore and Taiwan, each of which aims to become an offshore yuan hub.

Mainland participants in Hong Kong are worried.

"Foreign players' participation would be a blow to our business," said a senior executive at a mainland asset manager in Hong Kong who asked to be unnamed.

A total of 23 mainland asset managers formed an association in mid-July and are lobbying Beijing to slow down the granting of quota to foreign players, he said.

"Foreign institutions normally have better fund-raising capability than Chinese players, given their better relationship with big institutional investors overseas," said Shanghai-based analyst Cindy Qu at Z-Ben Advisors.

"Most Chinese asset houses' RQFII products focus on retail investors, whose capital base are usually small and volatile - how could they compete with foreign players if the latter teamed up with cash-rich big sharks in the market?"

HSBC's asset management unit said last Thursday that it, too, had obtained an RQFII licence.

Qu said the relaxation of the rules for RQFII eligibility is not completely negative for mainland asset managers, as they could earn revenue by advising foreign institutions wishing to enter the mainland market.