May 7, 2020 / 6:23 PM / a month ago

Beijing opens financial markets further amid tension with Washington

SHANGHAI (Reuters) - China finalised rules on Thursday that would scrap quotas under two major inbound investment schemes, giving qualified foreign institutions unlimited access to Chinese stocks and bonds in the latest step to open the country’s financial industry.

The revised rules come as tensions have flared up between Washington and Beijing in recent days over the origins of the coronavirus, with U.S. President Donald Trump threatening more aggressive economic measures against China.

“It is poetry in motion for me to watch the Chinese move on approving the significantly revised regulations to registration-based market access at the very same moment Washington is looking to coax U.S. institutions to refrain from allocating capital into RMB asset classes,” said Peter Alexander, managing director of Shanghai-based consultancy Z-Ben Advisors.

“For me, this is 4D chess going up against the Washington Beltway that can only operate in two combined modes - domestic and partisan,” he said.

Under the new rules, foreign investors no longer need to apply for any quotas under China’s two inbound investment channels - the dollar-dominated qualified foreign institutional investor (QFII) scheme and its yuan-denominated sibling, RQFII.

The rule changes are aimed at “further opening up China’s financial market,” the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) said in a joint statement.

In addition, the regulations would simplify administrative requirements on the remittance and repatriation of funds as well as currency exchanges by foreign institutional investors, aiming to better facilitate foreign participation in China’s financial market, according to the statement.

China introduced the QFII scheme in 2002 and RQFII in 2011 as part of the country’s financial deregulation, but the channels have become increasingly overshadowed by more recent cross-border programs such as Stock Connect and Bond Connect, which are less restrictive.

Nearly 300 global institutions including UBS AG (UBSG.S), Goldman Sachs & Co LLC (GS.N) and BNP Paribas (BNPP.PA) had obtained QFII quotas worth a combined $114.66 billion at the end of April, according to SAFE, the foreign exchange regulator.

The new regulations, which take effect June 6, were published after regulators solicited public opinions. The rules involve regulatory details around how foreign money investing in Chinese securities and futures shall be regulated.

“This is exactly what the foreign investment community wanted: clarity,” said Alexander of Z-Ben Advisors.

China is stepping up opening its giant financial industry, having removed foreign ownership caps in futures, securities and mutual fund sectors earlier this year.

Reporting by Samuel Shen and Andrew Galbraith; Editing by Leslie Adler

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