Central Bank Rebuilds "Management Of Foreign Investment Projects" At The End Of FDI

Li Keqiang, vice premier of the State Council, visited Hongkong last week. He announced that he would allow a series of measures, such as investing in domestic securities markets in the form of RQFII outside renminbi, and FDI by foreign enterprises, to provide more RMB for the RMB market.

Previously, the RMB in Hongkong was not allowed to flow back to the mainland freely. Only three overseas institutions such as the overseas central bank, Hong Kong and Macao clearing bank and overseas participating banks opened a pilot project to invest in the inter-bank bond market in the mainland. Other funds could only be deposited in Hongkong bank or limited RMB financial products such as bonds, while the low market interest rate in Hongkong has restricted the market size of Hong Kong's RMB.

At the press conference in August 22nd, the Hongkong Monetary Authority (hereinafter referred to as the "HKMA") made further explanations for a series of financial "preferential" measures given by Li Keqiang during his visit to Hong Kong.

RMB

Peng Xingtang, vice president of the HKMA, said that the RMB FDI could be launched before the end of this year. "We have talked with people, and the people said that we need to amend the" foreign investment project management measures "and we must follow this procedure.

"Many companies have contacted us and say they are very willing to make RMB FDI."

Peng Xingtang said that because of the relatively low cost of financing in Hongkong, the market demand is quite large.

As a matter of fact, since 2010, the mainland authorities have approved the FDI of RMB in a pilot case, but no fixed rules have been established.

The HKMA believes that the revision of the "foreign investment project management measures" will enhance the certainty of the examination and approval criteria and procedures, greatly increase the willingness of foreign investors to use Renminbi for direct investment and raise renminbi in Hongkong, and expects Hongkong bank loan demand to increase.

According to the relevant data of the HKMA, the total amount of FDI in the mainland reached 715 billion 800 million yuan last year, of which 57.3% came from Hongkong, about 401 billion 200 million yuan.

In the first half of this year, RMB loans in Hongkong amounted to 10 billion 980 million yuan, which has increased by more than 5 times compared with 1 billion 750 million yuan last year.

"To clarify the guidelines and procedures for the management of foreign investment projects, enterprises can estimate the time and opportunity required for their applications according to their own conditions."

Peng Xingtang pointed out that the US dollar FDI has been implemented for many years, and the revision should also refer to foreign currency FDI.

As for the examination and approval procedures, Peng Xingtang said that the revised "foreign investment project management measures" will still be determined according to the circumstances of the case. In general, the new approach only adds renminbi to the FDI currency instruments, so it will focus on modifying the relevant regulations on currency use.

The further opening of RMB direct investment channels will expand the way out for Hongkong's RMB capital. Meanwhile, the low cost of capital raising in Hongkong will also attract more mainland enterprises and financial institutions to issue RMB bonds.

Since 2007, Renminbi has been issued in Hong Kong.

Peng Xingtang expects that the total amount of RMB bonds issued in Hong Kong this year will exceed $100 billion, plus the Treasury's 20 billion yuan treasury bonds.

He also pointed out that the Ministry of finance will issue Renminbi bonds in Hongkong as a long-term policy, not only to deepen the depth of the RMB bond market, but also to provide standard interest rates for the market, so as to provide reference for other enterprises to issue bonds.

For RQFII, Peng Xingtang explained that because of RQFII's new measures, even the enterprises with QFII quota still need to reapply for new quotas.

He also disclosed that the HKMA already had quotas for investing in the interbank bond market in the mainland, so it was not necessary to apply for quotas again.

However, there is no plan for the HKMA to invest in the mainland stock market through the quota of RQFII.

Hong Kong banks benefit

In addition to the FDI, Vice Premier Li Keqiang also said that foreign banks will carry out pilot projects to increase capital by RMB.

Under the current arrangement, foreign banks, including the Bank of Hongkong, will be required to inject foreign currencies into the mainland after obtaining relevant approval. If they are further approved, they will be able to exchange funds into Renminbi for local use.

If the Bank of Hongkong is allowed to inject funds into the mainland subsidiary bank, it will help to avoid the risk of coming back and help it optimize the capital structure of the mainland's subsidiary banks.

At present, there are 13 Hong Kong funded banks operating in the mainland, of which 8 have been registered as corporate banks.

Peng Xingtang pointed out that these 8 banks will be able to benefit. However, the increase in capital is a general increase in capital and related entities.

In addition, supporting the establishment of branches by Guangdong funded banks in different branches will also help banks save costs.