China steps up opening of capital markets as securities watchdog broadens scope of inbound investments
- China Securities Regulatory Commission combines QFII and RQFII schemes
- Plans to improve the mechanism for margin trading and short-selling
China further deregulated its capital markets on Thursday, saying it would ease foreign institutions’ access by combining two inbound investment schemes, while broadening their investment scope to include derivatives, bond repurchases and private funds.
The China Securities Regulatory Commission (CSRC) published draft rules that would combine the Qualified Foreign Institutional Investor (QFII) scheme and its yuan-denominated sibling, RQFII. Regulators will also lower the threshold for overseas applicants and simplify the vetting process.
The new rules were aimed at “promoting high-quality opening of China’s capital markets and introducing more long-term overseas capital”, CSRC said in a statement on its website.
China is stepping up opening of its capital markets as the economy struggles amid protracted trade tensions with the US.
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CSRC vice-chairman Fang Xinghai has predicted foreign inflows into mainland Chinese stocks will total 600 billion yuan (US$89.5 billion) in 2019, doubling from last year. And starting in April, Chinese bonds will be added to the Bloomberg Barclays Global Aggregate Index.
CSRC said on Thursday it would scrap quantitative criteria for the combined QFII-RQFII scheme and shorten the approval time for applications.
Currently, foreign investors under the scheme are allowed to buy Chinese stocks and bonds, but the new rules greatly expand their investment scope.
Investors will be allowed to buy securities traded on China’s main over-the-counter equity market, the New Third Board, and also invest in private funds or conduct bond repurchase transactions.
In addition, foreign institutions will also have access to derivatives, including financial futures, commodity futures and options, according to the draft rules.
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At the end of 2018, 309 overseas institutions had been awarded US$101.1 billion of investment quotas under the QFII scheme, according to CSRC.
Beijing in June lifted a monthly 20 per cent cap on the funds that investors have been allowed to take out of China via the QFII and RQFII schemes, which bankers and consultants said would give overseas investors more comfort investing in the mainland.
CSRC also said on Thursday that it would improve the mechanism for margin trading and short-selling, in efforts to satisfy diversified investment needs.
The watchdog said it would adjust risk-management rules for brokerages, encouraging them to make more long-term equity investments.
CSRC said in a statement that the Shanghai and Shenzhen exchanges were studying expansion of the securities eligible for margin trading and short-selling. In addition, a uniform threshold for margin calls would also be scrapped.
