A more global yuan

In July, the ChinaAMC CSI 300 Index ETF, which China Asset Management (Hong Kong) Limited listed, was in high demand upon its availability on July 17. Later debuted RQFII products, such as CSOP A50 ETF, EFUND CSI100 ETF and HGI MSCI CN A, were also highly sought after.

The approved quotas for the CSOP A50 ETF and the EFUND CSI100 ETF are 5 billion yuan and 2 billion yuan respectively. Since the capital raised during their initial public offerings had already reached the upper limit, both funds closed for purchase after their debut.

On Aug 29, the SAFE raised the quota by 3 billion yuan for the EFUND CSI100 ETF, helping it open for purchase. On Sept 7, the CSOP A50 ETF also saw its quota rise by 2 billion yuan, which was soon digested by the market. On Oct 24, the CSOP A50 ETF suspended purchase again because its 7-billion-yuan quota had been used up.

SAFE had approved 21 RQFIIs by Sept 30. The A-share market is a major source of income for RQFIIs. By Nov 5, the CSOP A50 ETF had issued 1.05 billion fund units, with a market value of 7.8 billion yuan. The ChinaAMC CSI 300 Index ETF issued 221 million fund units, with a market value of 5.09 billion yuan. The EFUND CSI100 ETF issued 116 million fund units, at a market value of 2.57 billion yuan. The HGI MSCI CN A issued 244 million units, at a value of 1.94 billion yuan. Therefore, since July 17, there have been 18 billion yuan of offshore renminbi flowing into the A-share market via the RQFII.

The RQFII funds are performing well in terms of investment returns. Open market figures show that all the RQFIIs are making money, with net value growing between 0.17 percent and 3.76 percent. The top three return makers are the EFUND CSI100 ETF, the CSOP A50 ETF and the ChinaAMC CSI 300 Index ETF.

Due to their stable performance and high market demand, many RQFIIs are pressuring Hong Kong's financial authorities to appeal to expand RQFII quotas. According to a report by Hong Kong Phoenix TV, Hong Kong financial authorities also think present RQFII should be further revised.

At present, only fund management companies and insurance companies are qualified for the RQFII, and there are still limits on the investment proportion of stocks. Moreover, the 70-billion-yuan quota was too small compared with the huge offshore renminbi reserves in Hong Kong.

Therefore Hong Kong's financial officials had to seek help from the CSRC, requesting to increase the RQFII threshold.

Toward internationalization

Other good news from the CSRC is that the commission, in cooperation with Hong Kong financial authorities, is studying mutual recognition of cross-border funds.

This policy will allow fund products recognized by supervising authorities from the mainland and Hong Kong to be listed on each other's market without further recognition. Similar policies have been carried out for years in EU countries.

If this policy is adopted, fund products from the mainland can be sold in Hong Kong and vice versa. The renminbi will become the leading currency in the capital markets of both places.