Progress Reported On HK/China Equity Investment Scheme

by Mary Swire, LawAndTax-News.com, Hong Kong

28 October 2011

In his written answer to a question in Hong Kong’s Legislative Council, the Secretary for Financial Services and the Treasury, Professor K C Chan, confirmed that significant progress is being made on allowing investments in the mainland Chinese equity market by means of the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme, and on supporting Hong Kong's insurance companies' entry into the Chinese market.

These proposals were part of the policies and measures China’s Vice Premier Li Keqiang set out, in August this year, to support a further strengthening of Hong Kong's position as an international financial centre, particularly by expanding the cross-boundary use of the renminbi (RMB).

Chan disclosed that meetings have been held with the China Securities Regulatory Commission (CSRC) and the People' Bank of China (PBoC), during which it was understood that the CSRC was in discussion with the PBoC and the State Administration of Foreign Exchange about the technical details of the RQFII scheme.

Hong Kong’s government has expressed its desire to the CSRC for the early announcement of the technical arrangements, and will maintain close communication with the regulator. It understood that the scheme will be implemented shortly. That, Chan said, would promote the further development of the onshore and offshore markets through the two-way flows of funds between the two markets, with risks properly controlled.

He stressed that China’s authorisation of RQFII products requires collaboration in various respects. Following the production by a number of Mainland authorities of the relevant rules and specific implementation details, institutions which intend to launch RQFII products will, subsequently, need to apply to relevant Mainland authorities for approval of their eligibility and investment quota.

Following that institutions that meet the relevant Mainland conditions will require authorisation from Hong Kong’s Securities and Futures Commission (SFC), before offering RQFII investment products for sale to the public in Hong Kong.

It is considered that the existing regulatory system administered by the SFC is capable of handling a wide range of investment products to be offered for sale to the public under the RQFII scheme. The SFC will, however, liaise closely with the CSRC, and will use the same set of approval criteria under the existing regulatory system for assessing applications for authorisation of retail investment products offered under the RQFII scheme.

On the gaining of access to the Mainland market by Hong Kong insurance companies, Chan added that Hong Kong’s Office of the Commissioner of Insurance (OCI) has been reporting views on establishing business in the Mainland to the China Insurance Regulatory Commission (CIRC) through various channels.

During a recent meeting with the CIRC, the OCI has suggested the lowering of entry thresholds of Hong Kong insurance companies to the Mainland market to enhance co-operation between their respective insurance sectors. In addition, this would facilitate innovation in Mainland's insurance market, and enable the insurance sector of the Mainland to better fulfil its functions of preventing risks and providing protection.

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