China further opens up domestic financial market for foreign investment

China’s QFII and RQFII schemes are the subject of a consultation by China’s regulators, while inclusion of Chinese securities in global indices continues apace.
By Joe Parsons

Sponsored by China Construction Bank

Aiming to boost foreign investor engagement with China’s domestic financial markets, China’s regulators have released a consultation paper on new Qualified Foreign Institutional Investor (QFII) and RMB QFII (RQFII) rules. 

The two schemes would merge into one and the investment scope would be extended to include securities lending, treasury bond futures and commodity futures. The regulator has also decided to cancel investment quota restrictions for QFII and RQFII.

China has also announced a number of measures to further open up the Chinese financial markets, including encouraging overseas financial institutions to participate in establishing or investing in asset management subsidiaries of commercial banks, advancing the removing of foreign ownership limits in securities companies, fund management companies and futures companies and further facilitating foreign investment in the China Interbank Bond Market (CIBM). 

On 11 October, the regulator announced that as from 1 April, 2020, foreign ownership limits on fund management companies will be cancelled and foreign fund managers will be allowed to set up a wholly owned fund management company in China. 

Global Indexes

JPMorgan has announced that it will start a phased inclusion of nine Chinese government bonds in its flagship Government Bond Index-Emerging Markets (GBI-EM), beginning on 28 February, 2020 to be completed over the following 10 months. By the end of the process, China’s government bonds will account for 10% of the index.

Meanwhile, Bloomberg has begun adding Chinese RMB-denominated government and policy bank securities to the Bloomberg Barclays Global Aggregate Index. Inclusion began in April 2019 and will be carried out over a 20-month period, following which local currency Chinese bonds will be the fourth largest currency component after the USD, EUR and JPY.

Other index developments include an increase by MSCI in the weight of China A shares in MSCI Indexes from 5% to 20% in three steps this year, while FTSE Russell officially announced the inclusion of China A shares in its Global Equity Index Series (GEIS) from June 2019. 

CCB: Your Ideal Partner for Investing in China

China Construction Bank Corporation, established in October 1954 and headquartered in Beijing, is a leading commercial bank in Mainland China with a world-renowned reputation. The bank was listed on the Hong Kong Stock Exchange in October 2005 and on the Shanghai Stock Exchange in September 2007. With total assets of RMB 24.38 trillion in June 2019, CCB is one of the largest banks in the world by market capitalisation. 

CCB began offering custody services in 1998 with the emergence of the mutual fund industry in China. It has been one of the leading custodian banks ever since with assets under custody (AUC) over $1.8 trillion. CCB is also a market leader in cross-border custody services. Since 2005, CCB has won over 20 domestic and international custody awards.

The first Chinese bank to provide custody services to QFIIs, the bank now counts over 100 global investors from 11 countries/regions and four continents as clients. The cross-border custody team, composed of 45 dedicated professionals, guarantees clients local knowledge as well as an understanding of global practice and a close connection with regulatory authorities.