05/06/2015
China / Economics
China is moving ahead with capital account liberalisation, taking the Chinese yuan a step closer to becoming a widely held reserve currency
China has opened the way for 32 foreign institutions to invest in its US$5.9 trillion domestic bond market. This latest step in capital account liberalisation will lift the popularity of the yuan and move it closer to becoming a reserve currency.
The newly approved foreign investors will gain access to China’s QFII (Qualified Foreign Institutional Investor) and RQFII (Renminbi Qualified Foreign Institutional Investor) schemes. These are the two major channels through which offshore institutions can tap the onshore capital market (in both stocks and bonds).This "Q-expansion" is part of Beijing’s long-term commitment to open China’s capital account.
In this report from DBS, we analyse why more than 50 central banks, sovereign institutions, and supranationals have invested in yuan either through QFII / RQFII schemes, the China Interbank Bond Market, or offshore Chinese yuan (CNH) markets.
Here are a few key points from this report:
- China has approved 32 foreign institutions to invest in its bond market
- Room for further expansion as foreigners’ current bond holdings is only about 2% of the total
- To avoid offshore liquidity shrinkage, authorities will need to guide increased yuan outflow.
Read the full report
