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RQFII enhances boosts yuan's internationalization

(Xinhua)

14:46, September 13, 2011

BEIJING, Sept. 13 (Xinhuanet) -- Analysts said that the imminent RMB Qualified Foreign Institutional Investors (RQFII) trials will be conducive to expanding the investment channels of yuan funds raised in Hong Kong.

This will also enhance Hong Kong's role as an offshore RMB center and accelerating yuan's internationalization process.

The People's Bank of China (PBOC), the country's central bank, will kick-start RQFII trials soon, allowing yuan funds raised in Hong Kong to be invested in the mainland's securities market, a senior official said Thursday.

The official, who spoke anonymously, said that the initial investment quota allowed to RQFII will be less than 20 billion yuan (3.13 billion U.S. dollars), 80 percent of which will be invested in the mainland's stock market.

The option will first be open to domestic fund managers familiar with the A-share market and subsidiaries of securities companies in Hong Kong.

The RQFII program, one of the measures announced by Vice Premier Li Keqiang during his visit to Hong Kong last month, seeks to allow foreign investors to use offshore yuan to buy mainland securities.

EXPAND INVESTMENT CHANNELS

Despite the relatively conservative 20-billion yuan quota, the RQFII trail program was an encouraging start as it will help expand the investment channels for yuan funds raised in Hong Kong.

Analysts estimate that the RMB deposit in Hong Kong is likely to reach one trillion yuan by the end of the year.

At present, however, investors in Hong Kong have very limited options to invest in the mainland securities market, such as buying yuan-denominated bonds.

The RQFII program will help broaden the channels for yuan in the offshore market to flow back to the mainland, analysts said.

"By allowing offshore yuan fund to invest in mainland securities, it will accelerate more local financial institutions to bundle the yuan fund to develop more yuan-denominated financial products in the city," said Simon Luk, director at Capital Focus Asset Management.

Luk added that the market responses toward yuan-denominated financial products should be positive.

"If the market response is favorable, we will see more yuan structured and derivative-based financial products in the market," Luk said.

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