China’s State Administration of Foreign Exchange (SAFE) announced this month that it was scrapping investment quotas under its qualified foreign institutional investor (QFII) and renminbi qualified foreign institutional investor (RQFII) programmes. The move is largely symbolic as the quota limits were rarely approached and effectively had little impact on investment flows. Otherwise, the programmes will continue in their current form, i.e. qualified foreign institutional investors can still use them to invest in China’s financial markets.
China’s opening of new avenues of investment has reduced foreign investor dependence on the QFII schemes. The stock and bond market connections between mainland China and Hong Kong, in particular, have replaced use of QFII schemes, although volumes still remain limited.
China has made inbound investment easier in recent years, but possibilities to make securities investments from China abroad have not been deregulated equally. This arrangement has been used to support the yuan’s exchange rate.