SECURITIES SERVICES: CHINA’S CAPITAL MARKETS Figure 2: Projected asset growth in Chinese retail investor segments Personal wealth ranges Mass retail US$6,853–US$47,220 4.2 104.3 $1.1 $1.3 108.5 $9.1 2018 109.7 $12.4 $8.1 651 2023 103.6 $1.5 $2.2 Cream of mass retail
Potential to be mass affluent US$47,220–US$80,871
Mass affluent
Major investors in public funds US$80,871–US$871,317
6.1 High-net-worth individuals (HNWI)
Investors in public and private funds >US$871,317
$14.1
658.4
Mass retail
Cream of mass retail
Outer circle: Population (millions) Inner circle: Financial wealth (US$trn)
Mass affluent HNWI
Source: Deloitte Insights, China’s Investment Management Opportunity
also supported by CCDC (but is not yet applicable via Bond Connect). In addition, CCDC has established a connection with China’s futures exchanges to support investors who use their RMB bonds as margin in futures trading.”
Opening up of capital markets Rules for international investors in China have also been simplified to attract further inflows. In September 2020, the China Securities Regulatory Commission (CSRC) confirmed that the Renminbi Qualified Foreign Institutional Investor (RQFII) and Qualified Foreign Institutional Investor (QFII) programmes would be brought together under one unified scheme, the Qualified Foreign Investor (QFI) regime, as of November 2020. This announcement came several months after the State Administration of Foreign Exchange (SAFE) abolished the QFII and RQFII investment quotas altogether.
Chao says the rule changes mean the application process for foreign investors has become more straightforward. “Before
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the QFII and RQFII reforms, it could take from six to nine months for international investors to set up an account. This was a major hindrance for investors. Now the application approval turnaround time has dramatically shortened, with an expanded group of eligible investors able to participate in the scheme.” Similarly, some of the complicated documentation requirements have been eschewed in favour of an online application form. Other entry barriers have also been removed, namely stipulations that investors have a minimum track record in terms of their operations and assets under management. Risk management controls were strengthened too, with qualified foreign investors now permitted to appoint as many custodian banks as they choose, having previously faced limits.
In addition to making it easier for foreign investors to access onshore Chinese securities, regulators are providing overseas institutions with access to a more diverse range of RMB investment products. Further to the on-exchange, cash bond and onshore
FX derivatives markets, foreign institutions can now transact in shares traded on the National Equities Exchange and Quotations market; exchange bond repos; financial futures and commodity futures; options; margin trading; securities financing; securities trading; and private funds.
Chao predicts that the government’s decision to increase the number of available investment products will help generate foreign investor interest, especially from institutions that previously avoided China − citing a lack of investment choice, concerns about market liquidity, and an inability to hedge risk adequately. “We are seeing a growing number of long-term investors such as central banks and sovereign wealth funds express an interest in China,” explains Chao. “These reforms will be vital in attracting foreign investors and strengthening the RMB’s credentials.”
A delicate balancing act Given persistent volatility in the RMB’s exchange rate, it might become necessary for regulators to maintain or even restrict
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