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RQFII is the renminbi qualified foreign institutional investor scheme. Launched in December 2011 it allowed a small number Chinese financial firms to establish renminbi-denominated funds in Hong Kong for investment in the mainland. The aim being to allow overseas investors to use offshore renminbi deposits to invest in mainland securities markets
The China Securities Regulatory Commission initially set the quota at 20bn renminbi divided between a numer of companies, all of which were subsidiaries of mainland asset managers. The quota was later raised to 70bn renminbi and by November 2012 had been further raised to 270bn.
Restrictions were also imposed on investment class from the outset. The CSRC determined that 80 per cent of the quota should be invested in mainland fixed-income markets (including the inter-bank bond and exchange traded bond market) while 20 per cent was to be allowed to enter the stock markets. The fear was that large amounts of money entering mainland stock markets would cause volatility.
In September 2012 a surge of enthusiasm was reported for RQFII funds following a rally in China's bond market.
In March 2013 the RQFII scheme was further widened. Previously, the programme was only open to Hong Kong subsidiaries of Chinese companies, meaning just a handful of companies could apply for investment quotas. From March 2013 this was widened to include international banks and asset managers with a presence in Hong Kong, paving the way for a host of new products and fund launches.