A more global yuan

Sales of RQFII products prove international demand for the renminbi is growing

Demand for the renminbi in Hong Kong has led several senior officials, including Financial Secretary John Tsang Chun-wah, Secretary for Financial Services and the Treasury K.C. Chan and Hong Kong Monetary Authority Chief Executive Norman T.L. Chan, to pay a visit to Beijing on Oct 29, asking the China Securities Regulatory Commission, or CSRC, for support and exchanging views with CSRC Chairman Guo Shuqing.

China is accelerating the process of internationalizing its currency. [Photo/bjreview.com.cn]

A senior CSRC official disclosed on Nov 2 that upon request of the government of the Hong Kong Special Administrative Region, the CSRC is planning to further enlarge the investment quota for renminbi qualified foreign institutional investors, or RQFII, by coordinating with the People's Bank of China and the State Administration of Foreign Exchange, or SAFE.

Hong Kong appealed for another RQFII investment quota of 100 billion-200 billion yuan ($15.9 billion-31.8 billion), which has been supported by the CSRC. On Nov 13 the CSRC, PBOC and SAFE agreed to increase the RQFII quota by 200 billion yuan.

Besides raising the investment quota, the commission will also consider further improving the RQFII system by expanding its investment scope and relaxing investment restrictions so as to allow more Hong Kong financial institutions to apply for the RQFII.

Industrial insiders think expanding the RQFII investment quota and relaxing application qualifications will undoubtedly accelerate the capital account convertibility of the renminbi and promote the process of its internationalization.

Hong Kong is the world's largest renminbi offshore center, and the source of most of the present RQFII capital. According to figures from Hong Kong Monetary Authority, renminbi deposits in Hong Kong had reached 550 billion yuan by the end of September. It is expected that as the renminbi is more internationalized, the amount of RQFII capital will increase steadily.

Thirsty market

This is the third and largest expansion of the RQFII.

The CSRC and SAFE jointly launched the RQFII system at the end of 2011 with an initial quota of 20 billion yuan. Qualified fund management companies and securities companies are allowed to issue renminbi-denominated funds and invest them into the mainland capital market.

Most of the first batch of RQFII products were launched at the end of March and were mainly invested into the bond market. Benefiting from relaxed money supplies and narrowing interest difference in the mainland market, these RQFII products have performed well.

Public figures from Hong Kong show that the average growth rate for the net value of the first batch of RQFII products is 1.2 percent.

China raised the quota by 50 billion yuan in April, capping it at 70 billion yuan.

Different from the first batch, the newly increased quota can be used to develop Exchange Traded Funds that are invested in the stock index of the A-share market. The decision was widely welcomed for satisfying the demand of institutional investors to track the performance of stocks in the mainland market.