China has relaxed rules by which foreign investors can deploy offshore renminbi in onshore assets in another step towards opening its markets.
The changes to the renminbi qualified foreign institutional investor (RQFII) programme address some of the complaints raised by index provider MSCI, which opted not to include Chinese mainland-listed shares in its widely followed Emerging Markets index earlier this year.
The new rules bring the RQFII scheme in line with the reforms made in February to the QFII programme, a predecessor scheme which allows qualifying investors to buy mainland assets in dollars.
"The steps are clearly in the right direction," said David Raper, manager of the Comgest Growth Greater China fund, of the RQFII rules and other reforms. "This is what MSCI needed to see."
According to the new rules from the State Administration of Foreign Exchange, licensed RQFII investors will receive an investment quota based on their assets under management (AUM). If their assets are mostly held outside China, RQFII holders or their parent companies will receive an initial quota of $100 million plus 0.2% of their AUM, calculated as an average over the past three years, minus any quota held under the QFII scheme.
RQFII holders whose assets are mostly held inside China will receive an initial quota of 5 billion renminbi ($749 million) plus 80% of their AUM the previous year minus any QFII quota.
In addition, certain foreign institutions such as registered sovereign wealth funds, central banks and monetary authorities will face no quota limits at all.
In the past, China awarded RQFII quotas to foreign territories which would be shared between all investors domiciled in that territory.
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