A wave of international demand for Chinese equities has forced some providers of exchange traded funds, including Deutsche Bank, to shut products to new investment.
Many China-related ETFs rely on the renminbi qualified foreign institutional investor (RQFII) scheme, a quota system through which China grants access to its markets, in order to buy the mainland assets that underpin the funds. The programme – which runs parallel to a US dollar-denominated scheme – was launched in 2011 and is designed to encourage wider use of the Chinese currency.
China has doled out RQFII quotas to a number of financial centres, including London and Singapore, but Hong Kong remains the centre for RQFII investment with a quota of Rmb270bn ($44bn). RQFII quotas are given to institutional investors and asset managers either to invest their own capital onshore – both in stocks and bonds – or to launch new fund products.