China is on the brink of dramatic growth and intense investor interest, with HSBC suggesting the country is going to continue to open up its market to complete circulations of the flow in and out of China. During the HSBC China Market Access media roundtable, Florence Lee, head of China business development, Europe, the Middle East and Africa, securities services, HSBC, explained that March this year marked the end of China’s five-year plan — which included opening up its economy and attracting foreign trade and investment. Lee highlighted that over the past few years China has been increasingly opening up its markets through inbound schemes such as qualified foreign institutional investors (QFIIs) and Renminbi QFIIs (RQFIIs), CIBM Direct, Stock Connect, Bond Connect. China has also used outbound schemes like Qualified Domestic Institutional Investor (QDII) and the Qualified Domestic Investment Partnership (QDLP). In December 2020, HSBC facilitated the first onshore private fund investment via the Qualified Foreign Institutional Investors and RMB QFII/RQFII scheme in mainland China. Also in December last year, HSBC facilitated short selling transactions by an offshore investor via the QFII scheme. During the discussion, Lee referred to a survey conducted by HSBC in August and September 2020 covering over 900 investors. Of this number, 98 per cent said they have already engaged actively in the China offshore market, Lee highlighted that this was partly driven by the attractiveness of China opening up its markets. The results found that 49 per cent were driven by the index inclusion. On the fixed income side, two major indices — Bloomberg Barclays Global Aggregate Bond Index and J.P. Morgan Government Bond Index Emerging Markets — have already completed the inclusion of Chinese bonds. Lee noted: “A lot of changes and reform had to be implemented before the index inclusion could become successful.” “There has also been an extension of trading hours and the liquidity problem has also been addressed, and so has taxation and repatriation. All of this shows that the index and the Chinese regulator and the market infrastructure have worked hard together to ensure that all of this can become compatible with international standards.” She suggested they have worked hard to also ensure that the international investor will feel confident when they start trading. “This is a very important step to enhance China and make it a capital market,” Lee commented. HSBC’s observations during the last year of the pandemic were also discussed. She said: “We've been engaging with quite a lot of clients, some of them for years or months, because the China market is not an easy market to access.” “Clients who are located further away from Asia, and are trying to market, need a lot more information and knowledge to build up confidence. I think that part of investor education is very important.” However, since last year, Lee identified that since the pandemic started, a lot of clients have changed from a ‘wait and see' approach to an ‘action stage’ approach. This was further emphasised in HSBC’s recent survey with central banks, which launched this month [May 2021]. Around 78 central banks participated and their average holding is about $82 billion, representing about 44 per cent of the global reserves. Through the survey, it was identified that more central banks will now have renminbi exposure. “The most common one they are buying is the CGB Chinese Government Bond. On the other side, we are also seeing an increase in the number of central banks that are starting to have Chinese renminbi assets,” Lee affirmed. Compared to 2012, only three central banks on the survey had these assets in their reserve but now, in the 2021 report, 43 banks have now invested in the renminbi asset. “Although this is still low, there is a trend showing that this asset is becoming increasingly popular; more central banks will be considering it in the future as well,” Lee cited. Meanwhile, Candy Ho, managing director, head of business development, Greater China, markets and securities services, HSBC, concluded: “China is going to open up its market, not only from a capital inflows perspective but also from a portfolio outflows perspective to complete the circulations of the flow in and out of China.”
