Hong Kong’s RQFII quota increased to 500b yuan

China’s state council has approved the increase of Hong Kong’s renminbi qualified foreign institutional investor (RQFII) quota to 500 billion yuan (US$73.6 billion), according to an announcement posted on the People’s Bank of China website on Tuesday.

In the brief statement, China’s central bank said that the move would help Hong Kong investors’ yuan allocation needs, promote greater opening up of mainland financial markets and drive closer links between the mainland Chinese and Hong Kong financial markets.

The RQFII programme is one way in which overseas institutions can invest in China’s domestic securities market.

Institutions and jurisdictions are given a quota, which sets an upper limit on the amount they can invest under the scheme.

Hong Kong was the first jurisdiction where the programme was trialled. Until today’s announcement its RQFII quota was 270 billion yuan, all of which had been allocated already, according to the HKMA.

“Hong Kong’s RQFII quota has been further increased significantly and remains the largest in the world, and this highlights our important role as an intermediary to facilitate overseas investors’ participation in the mainland financial markets,” Norman Chan, chief executive of the HKMA, said in a statement.

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“I hope our industry stakeholders will continue to make good use of the scheme and develop more diversified RMB business leveraging Hong Kong’s platform.”

Since the launch of RQFII and its predecessor the qualified foreign institutional investor (QFII) scheme, Chinese regulators have opened up a number of new ways of accessing China’s capital markets. These include the two stock connects between Hong Kong and Shanghai and Hong Kong and Shenzhen, last year’s opening up of China’s interbank bond market, and most recently Monday’s announcement of Bond Connect.

“On the face of it the increase will certainly augment the flow of capital into yuan denominated assets while also proving the continued commitment of the PBOC to open up the Chinese market,” said Brett McGonegal chief executive of Capital Link International.

“Hong Kong has always been the gateway to Chinese markets and yuan products, thus this announcement provides further proof of concept.”

The QFII and RQFII channels have proven popular with investors. According to research from Standard Chartered, 30.8 per cent of investors who are already invested in China say they are likely to continue using the QFII and RQFII channels already in place for future investments, despite the new investment opportunities on offer.

“Just because you are now allowed to access new schemes, it doesn’t mean people will use them,” Barnaby Nelson, greater China and north Asia head at Standard Chartered Bank said last week. “People will not migrate away from the old QFII schemes unless there is a easy way to do so.”