China policy round-up: QFII freed from repatriation cap, CSRC wants more A-shares in MSCI, PBoC’s Yi sings Shanghai’s praises
FX watchdog loosens its grip on capital outflows for foreign investors, securities regulator lobbies for A-shares to make up more than 0.73% of MSCI’s benchmark emerging market (EM) index, and the governor of China’s central bank hails Shanghai as the prime spot to pilot further liberalisation.
The State Administration of Foreign Exchange (Safe) has announced a series of relaxations this week for those entering the onshore market with the qualified foreign institutional investor (QFII) and RMB QFII (RQFII) programmes, according to a June 12 statement by the regulator. The rules came into force with immediate effect. Safe has scrapped the restriction on QFII investors to repatriate no more than 20% of their total assets in China each month, abolished the three-month lock-up period for investment principals for both QFII and RQFII, and allow investors on the two programmes to hedge their FX exposure in the onshore market, according to a June 12 report by Xinhua.
Representatives from the Chinese financial sector, including central bank officials and regulators, gathered in Shanghai for the annual Lujiazui Forum on Thursday. Fang Xinghai, deputy chairman of the China Securities Regulatory Commission (CSRC), told the forum that Chinese A-shares could increase their weighting in the MSCI (EM) index. The index provider started including A-shares on June 1 with an inclusion factor of 5%, which will give the Chinese stocks a 0.73% weight in the benchmark upon the completion of the inclusion in September. He said the CSRC is working with relevant ministries and the Shanghai and Shenzhen stock exchanges to introduce various measures, such as futures for stock indices and mechanisms to regulate stock suspensions, in order to win index providers’ confidence and take the inclusion factor to 15%. Fang also noted that the MSCI inclusion has supported higher inflows into Chinese equities, noting that there have been Rmb3.61bn of average daily inflows through Stock Connect’s northbound trading since June 11, up 167% from the daily average in the first five months of the year.
The PBoC will pilot more cross-border RMB products and services in Shanghai to push for the currency’s internationalisation, Yi Gang, the Chinese central bank’s governor, told the Lujiazui Forum on Thursday. Shanghai should be a laboratory for the liberalisation of China’s capital account, and take advantage of its role as an international financial centre to help finance Belt and Road projects, he added. The central banker delivered a similar message later that day at the PBoC’s Shanghai office, according to a June 14 statement published by the PBoC.
Chinese financial institutions will only be competitive abroad if China allows foreign financial institutions to expand onshore, Guo Shuqing, head of the China Banking and Insurance Regulatory Commission, said at the same forum on Thursday. Guo is also the party chief of the PBoC. “Foreign banks only have a 1.3% share in our domestic market, and foreign insurance companies have approximately a 6% market share,” he said. “The further opening up of the financial industry is an urgent task for us to improve our country’s competitiveness in services and productivity.” Foreign companies make up about 30% of the 1,500 financial institutions in Shanghai, and the annual transaction volume in the city’s financial market topped Rmb1,400tr last year, according to data provided by state media China Daily. Guo also sounded extremely bullish about the prospects for the Chinese economy, and in particular, its ability to sidestep the sort of crises that engulfed the West. “Only our country, with the leadership of the Chinese Communist Party and the active management of various levels of government, mobilising the whole of the society, has prevented all kinds of risks and stopped systemic crises from happening,” he said.
The CSRC has approved Manulife Teda Fund Management, a joint venture between Manulife Financial and Tianjin-based Teda Investment Holding, to set up a fund under the outbound Qualified Domestic Institutional Investor programme, targeting Indian equities, according to a June 11 announcement by the regulator. Agricultural Bank of China is the custodian of the fund.