China to Launch RQFII Trials

China issued rules for pilot programs of RMB Qualified Foreign Institutional Investors (RQFII) on Dec.16, formally giving a green light to investment of overseas RMB funds in mainland securities markets.

The move is expected to widen the investment channel of overseas RMB funds and add new momentum to the country's bid to make the RMB an international currency.

Hong Kong subsidiaries of fund management companies and securities firms can use RMB funds raised in Hong Kong to invest in mainland securities within a permitted quota, according to the rules jointly released by the China Securities Regulatory Commission (CSRC), the People's Bank of China and the State Administration of Foreign Exchange.

The total investment quota of RQFII pilot programs is set at around 20 billion yuan (3.15 billion U.S. dollars), according to the rules.

To control risks, qualified investors should invest no less than 80 percent of the RMB funds they raised in fixed-income securities, while investment in stocks and equity funds should account for no more than 20 percent.

The CSRC will join other related departments to study the possibility of further expanding the trial program after its launch, said a CSRC official who declined to be identified.

The launch of the RQFII will open another significant channel for overseas RMB funds to flow back into the country, said the CSRC official.

It will also help diversify investment products for overseas RMB funds and facilitate off-shore RMB business, the official said.

The RMB is not fully convertible under the capital account but China has stepped up efforts to make the currency more international over the past few years.

The government has encouraged the use of the RMB in cross-border trade and investment settlement and approved foreign direct investment in overseas RMB funds obtained overseas.

It also allowed Hong Kong to establish an offshore yuan market and has expanded trade settlement agreements and currency swaps to create more channels for the yuan to circulate outside the mainland.

Source: Xinhua