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RQFII quota to fortify weak Singapore-China link

China’s doubling of Singapore’s RQFII quota is expected to boost cross-border RMB flows and help strengthen a comparatively weak link to China’s financial industry.

Singapore’s Renminbi Qualified Foreign Institutional Investor quota, which allows for foreign investment into China’s securities markets, will be doubled to RMB100bn ($15.72bn), from RMB 50bn ($7.8bn) in 2013, according to an agreement this week.

The annnouncement comes just after President Xi Jinping’s visit to Singapore on 6-7 November.

Ravi Menon, managing director at the Monetary Authority of Singapore, noted that the expansion of the RQFII quota is the result of robust interest from Singapore-based asset managers and investors keen to invest in China.

Increasing the RQFII quota is also a way for China to position the RMB as an international currency. Along those lines, the government has also taken steps to support the inclusion of the RMB in the IMF’s Special Drawing Rights (SDR) currency bucket, which is widely expected to happen in the coming weeks.

“Over the long-term, we believe that the [RQFII] quota system is a temporary arrangement that will exist until the RMB reaches full convertibility,” according to a research note from PineBridge Investments. 

“The current restrictions to access will be substantially loosened over the coming years, in line with the fast pace of the RMB internationalisation.” 

Singapore missing out

The doubling of the RQFII quota comes at a time when Singapore needs to develop stronger linkages with China to support its claim to be Asia’s financial hub.

Singapore has been on the sidelines as capital flows increase between Hong Kong and China through the Stock Connect initiative. The Mutual Recognition of Funds, seen as a promising initiative by the industry, also excludes Singapore.

It is not only capital flows, but competitive advantage. Tight Hong Kong-China connectivity gives asset and wealth managers considering an Asia operation a strong incentive to look at Hong Kong.

MAS seems to have recognized the competitive issue. “In the next phase of our financial cooperation with China, we hope to replicate in the area of capital market development the success we have had in building the RMB ecosystem,” said Menon, from MAS.

He added that there are “significant opportunities for exchanges from both sides to collaborate in a mutually beneficial way”.

Part of the Mark Allen Group.