miércoles, 20 de marzo de 2013

miércoles, marzo 20, 2013


19, 2013 11:34 am

China widens door to foreign investors
 
Amid all the talk of renminbi internationalisation, one question has long bugged offshore investors: what to do with the Chinese currency?


China’s strict controls on its capital account have largely prevented overseas holders of renminbi from investing the currency. While there have been some avenuessuch as the dim sum bond market in Hong Kong – the inability to put cash back to work on the Chinese mainland itself has stymied international use of the renminbi.
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However, the window for international investment has now been cracked open, under new rules announced early this month by the China Securities Regulatory Commission (CSRC) regarding its renminbi qualified foreign institutional investor (RQFII) quota scheme, through which international investors use their Chinese currency holdings to buy onshore assets.


Since the initial launch of the RQFII system in late 2011, only the Hong Kong subsidiaries of Chinese brokers have been eligible, giving China’s big asset managers – such as Harvest, E Funds and China AMC – an advantage in the battle to win global mandates. It also enabled them to offer passive investment products, such as exchange traded funds, that are backed by direct exposure to onshore Chinese assets, rather than derivatives. Only 12 companies have so far been given RQFII quotas, according to the CSRC, while the total quota available has risen from Rmb70bn to Rmb270bn ($43bn).


However, the new regulations open the scheme to “financial institutions that are registered and mainly operated in Hong Kong”. Though the wording remains vague, analysts believe that most major international fund managers in the city will be eligible.


The changes are “something that people have been waiting for and asking for”, says Catherine Simmons, head of regulatory affairs for Asia Pacific at State Street. “A lot of foreign fund managers are very pleased to see this. It levels the playing field for foreign and Chinese asset management firms.”


The advantage of expanding the RQFII system rather than the better-known qualified foreign institutional investor (QFII) scheme is that funds invested in renminbi do not add to China’s already bulging foreign exchange reserves, says Becky Liu, rates strategist at Standard Chartered. QFII quotas are granted in US dollars or euros.


The changes are also “an important step to make renminbi more internationalised”, and part of the government’s efforts “in liberalising foreign exchange control”, says Yang Tie Cheng, partner at Clifford Chance in Beijing.


The immediate beneficiaries of the reforms are likely to be the offshore asset management arms of the big Chinese banks which, until now, have also been unable to invest onshore. Although the new rules are only days old, offshore subsidiaries of ICBC and Bank of China are among those that have already started the process of applying for quota.


“We have clients who are in possession of a substantial amount of renminbi. Instead of getting delivery in dollars [from trade], some of them have accumulated the [Chinese] currency and want to use it. For those investors, the RQFII quota will be very convenient,” says Jack Chang, chief executive of ICBC Asia investment management, who runs renminbi funds for clients including the Nigerian central bank.


Both Mr Chang and Au King Lun, chief executive of Bank of China (HK) asset management, say they plan to launch new RQFII-based funds once they have received approval from Chinese regulators.


International managers also expect to feel the positive effects of the looser RQFII regulations, and will now be able to use renminbi to invest in a wider range of assets, including the domestic interbank bond market, something not possible under the existing rules.


Global investors will now be able “to invest very broadly in the onshore bond marketnot just the listed market but also the OTC [over the counter] market. That’s where the bulk of the market is.


That opens up a whole range of new possibilities and is certainly one of the areas that we’re very interested in,” says Bill Maldonado, chief investment officer at HSBC asset management.


Chinese borrowers have dominated the Asian offshore credit markets this year, accounting for more than 50 per cent of the market. However, many international investors are keen to tap the onshore market, which is far larger and offers considerably higher yields.


The new RQFII rules are part of a broader effort by the authorities to push global use of the renminbi. Offshore trading in the Chinese currency began in Taiwan last month, with Singapore expected to follow suit soon. The UK also announced its plan to set up a currency swap facility with China, in a bid to become a global renminbi trading centre.


Meanwhile, the Chinese authorities have introduced a number of measures to open up the country’s financial markets, with the aim of attracting more long-term investors to its volatile, retail-driven equity markets. Although many of those changes happened under Guo Shuqing, the former CSRC chairman, investors expect the new regulatory chief, Xiao Gang, to pursue similar policies.


 
Copyright The Financial Times Limited 2013.

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