Tuesday, July 14, 2020
Martin Hennecke

Quota restrictions off mainland stocks
China's foreign exchange regulator announced yesterday quota restrictions on two inbound investment schemes - the US dollar-dominated qualified foreign institutional investor scheme and its yuan-denominated sibling, the RQFII - are being removed. Under the changes to the QFII and RQFII programs, foreigners need only to register before investing in Chinese securities, which the State Administration of Foreign Exchange said would make China's bond and equity markets "better and more widely accepted by international markets." The move was made with the yuan weakening, the stock market sluggish and people moving currency and investment out of markets amid the China-US trade war. "The move is more symbolic and won't trigger significant capital inflows," said Ding Shuang, the chief China and North Asia economist at Standard Chartered Bank. "But it's a good gesture for the officials to make as the 70th anniversary of the People's Republic of China's founding is approaching and there's a lack of positive development in the trade talks with the US." Fang Dongming, head of China equities at UBS, said: "QFII and RQFII could introduce mid- to long-term capital into the onshore market more directly, which is beneficial to the stabilization of the financial market," And Shao Yu, chief economist of Orient Securities (3958), said that long-term capital and investors with value-investing strategies are more welcomed by Chinese regulators while hot money, which just goes in and leaves quickly, is not welcome. Shao also noted that existing stock connect schemes just "seal" capital in related accounts and do not involve real cross-border capital. The process of granting overseas investors similar ease of access as local players started in 2000, when Beijing was negotiating entry into the World Trade Organization. It picked up pace last year after US President Donald Trump attacked China as a one-sided beneficiary of global commerce. China began easing rules last year, when it removed lock-in periods and allowed investors who used the quotas to repatriate their money at any time. There had previously been limits on the amount foreigners could take out of the country in one go. There are also alternate routes of investment, including trading links with Hong Kong Exchanges and Clearing (0388), that allow offshore money managers to trade stocks and bonds in China via the SAR.

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