China’s qualified foreign institutional investor (QFII) scheme and its renminbi equivalent (RQFII) allow foreign institutional investors to invest in onshore assets, within allocated quotas.
Four firms received new or additional RQFII quotas in August, according to data from China’s State Administration of Foreign Exchange (Safe).
These firms include Da Cheng International Asset Management, which more than tripled its RQFII quota to RMB 11.7bn ($1.63bn), and Neuberger Berman’s Singapore subsidiary, whose quota quadrupled to RMB 3.4bn.
Neuberger Berman manages a number of China- and emerging markets-focused funds, while Da Cheng has two RQFII funds sold in Hong Kong, according to FE data.
Meanwhile, Shanxi Securities and Prudence International in Hong Kong became new recipients of RQFII quotas.
| Additional quota | Total quota | |
| Neuberger Berman | RMB 2.6bn | RMB 3.4bn |
| Da Cheng International Asset Management | RMB 8bn | RMB 11.7bn |
| Shanxi Securities International Asset Management | New quota | RMB 800m |
| Prudence Investment Management (Hong Kong) | New quota | RMB 680m |
Source: SAFE
On the QFII front, Kuwait Investment Authority received an additional $500m in quotas last month (for a total of $2bn), while Barclays Bank received an additional $2.3bn (for a total of $2.65bn).
Index inclusion spike
A number of foreign managers have continued to increase their QFII and RQFII quotas. Earlier this year, Japanese firms started to apply for additional quotas.
Foreign investors are increasing their allocation to China securities, driven in part by the inclusion of China’s equities and bonds on global indices, according to Jack Cho, marketing manager at Neuberger Berman in Hong Kong.
“In light of the index inclusion, increasing allocation to China and continuous inflow to our [Ucits] China Bond Fund, the previous RMB 800m RQFII quota is not sufficient to meet investors’ demand,” Cho wrote in an email answer. “As such, we applied for additional quota.”
He added that Bond Connect is becoming popular among foreign investors but it is limited to bonds trading on the China Interbank Bond Market. With RQFII quota, the firm can access exchange-listed bonds.
Since the quota programmes began, Safe has awarded a total of RMB 693.3bn in RQFII quotas to 222 licence holders, and $114.4bn in QFII quotas to 292 licence holders, according to Safe.
In 2019, the China Securities and Regulatory Commission (CSRC) released a consultation, proposing changes to combine the QFII and RQFII programmes.
Industry players believe that the new regulations should benefit foreign managers that have a QFII or RQFII licence as well as a wholly foreign-owned enterprise (WFOE) that operates as a private fund manager.
Melody Yang, Beijing-based partner at law firm Simmons & Simmons, explained that the new rules should ease the pressure of meeting the Asset Management Association of China’s (Amac’s) requirement to raise capital and launch the first fund within six months after PFM registration.
“Foreign PFMs could be seeded by their own QFII/RQFII [quotas]. PFMs are under pressure for the fund to reach a certain size in order to implement their investment strategies and maintain the operations of the PFMs. Therefore, with the contribution of the QFII/RQFIIs, this will solve the fund-raising difficulties of PFMs to some extent,” she said.
