Bank of China's Renminbi Settlement Service in Sydney
In late July this year, the Bank of China unveiled its Chinese Renminbi (RMB) Settlement Service in Sydney. The Settlement Service utilises the Australian Stock Exchange's Austraclear infrastructure to allow Australian companies to use RMB as a settlement currency in cross-border transactions. Moving forward, the Settlement Service could be used to facilitate the development of RMB denominated bonds and structured investments in the Australian market.
RQFII Program
The Renminbi Qualified Foreign Institutional Investor Program (RQFII Program) was established in late 2011. It allows non-People's Republic of China (PRC) institutional investors, from certain approved jurisdictions (Relevant Jurisdictions), to invest in certain PRC onshore financial instruments, the most relevant of which are stocks, bonds, warrants and other securities listed on PRC stock exchanges, using offshore RMB.
So far, approved Relevant Jurisdictions include London, Paris, Singapore, Hong Kong, Taiwan, South Korea and Germany. Hong Kong tops the list, in terms of the size of its RQFII quota provided by the China Securities Regulatory Commission (CSRC), at 270 billion yuan. The United Kingdom (UK), France, South Korea and Germany were each provided with RQFII quotas of 80 billion yuan, while Singapore was provided with a quota of 50 billion yuan.
It has been suggested by some commentators, that the recent launch of the Chinese RMB Settlement Service in Sydney would foreshadow the granting of a RQFII quota to Australia (and in turn Australia-based financial institutions) later this year.
The Reserve Bank of Australia has identified an Australian RQFII quota as an important step in facilitating cross-border RMB denominated investment transactions between the PRC and Australia, and an area of significant potential growth for Australia's funds management industry.
Participation in the RQFII Program is open to financial institutions with a principal place of business in a Relevant Jurisdiction that:
- have obtained an asset management licence (with the relevant authorisations) issued by a regulator in the Relevant Jurisdiction, and
- operate an asset management business.
Assuming applicants meet this requirement in a Relevant Jurisdiction, the RQFII application process in the PRC is a two stage process involving the CSRC and the State Administration of Foreign Exchange (SAFE).
An Australian RQFII applicant would first apply to the CSRC for the grant of a RQFII licence. If successful, the Australian RQFII applicant would then apply to the SAFE for an investment quota.
What the RQFII Program can Offer Australian Fund Managers
Participation in the RQFII Program will allow Australian fund managers to create new products and investment strategies, which include PRC onshore financial instruments, that were previously not available to them. Specifically, the RQFII Program will allow Australian fund managers to deal directly in the PRC onshore securities market and, as a result, give them access to:
- PRC A-shares and fixed-income bonds of PRC entities not currently available offshore
- securities in numerous fast-growing Chinese sectors such as healthcare, technology, multimedia and consumer sectors not currently listed outside the PRC, and
- onshore fixed-income bonds.
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