People's Bank of China (PBoC) has announced yesterday that a 50 billion RMB quota has been granted to Luxembourg under the Renminbi Qualified Foreign Institutional Investor (RQFII) program in an effort to further promote global use of RMB.
Luxembourg investors will now have the right to invest in the mainland's capital market using offshore RMB. This will further reinforce Luxembourg's role as a true offshore RMB centre.
The RQFII program began in 2011 as a way for overseas investors to invest in Chinese capital markets. Institutions with an RQFII licence and quota can invest in China's A share market (including A shares listed on the Shanghai and Shenzhen Stock Exchange, bond and warrants), mutual fund, inter-bank bond market and stock index futures. This will also facilitate the inbound RMB flow to China.
Institutions which have asset management licences in Luxembourg can now apply for the RQFII licence and quota. They first need to submit applications to the China Securities and Regulatory Committee (CSRC) through a custodian bank in China, and it usually takes two months for the licence to be granted by the CSRC. Then applications for the quota to the State Administration of Foreign Exchange (SAFE) can be made to obtain the RQFII quota. PBoC will be responsible for approving access to the inter-bank bond market and to supervise RMB accounts and RQFII cash flows.
The RQFII quota is particularly useful for fund managers who seek international distribution through the Luxembourg platform. Harbouring more than 67% of UCITS (Undertakings for Collective Investment in Transferable Securities), Luxembourg authorised the first RQFII fund under the UCITS scheme in November 2013, allowing 100% of the net assets of such an RQFII UCITS be invested in China A shares through the use of the RQFII quota granted to its manager in other jurisdictions. Now, after obtaining such RQFII licence and quota in Luxembourg, institutions can invest assets of an RQFII UCITS directly from Luxembourg to the Chinese capital markets. Thus, it is anticipated that the number of RQFII UCITS will continue to grow, maintaining Luxembourg's position as the financial centre with the largest RMB business volumes in the Eurozone and the European fund centre with the largest number of regulated funds in Europe.