HONG KONG Aug 20 Bank of East Asia, a commercial lender in Hong Kong, has been approved to invest in China's bond and stock markets in yuan as the world's second-largest economy steps up financial market liberalisation.
Participation from banks in China's Renminbi Qualified Foreign Institutional Investor (RQFII) will break the monopoly of local brokerage firms and fund houses, bringing in more competition as banks have large yuan deposits for investment.
Bank of East Asia (BEA), incorporated in Hong Kong in 1918 and with a market capitalisation of less than $10 billion, will be allowed to invest in China's fixed income and A-share markets with yuan funds from the offshore market via the scheme.
Francis Ng, general manager and head of treasury markets division of the BEA, told Reuters it will use its own RMB funds to invest in the onshore market under RQFII.
China introduced the RQFII scheme with an initial quota of 20 billion yuan ($3.27 billion) in 2011 and expanded it to 270 billion yuan at the end of 2012 to attract more foreign investors to its market.
Regulators loosened restrictions on participants under the RQFII scheme in March by allowing Hong Kong subsidiaries of mainland commercial banks and insurance companies, as well as financial institutions primarily based in Hong Kong, to take part.
David K.P. Li, chairman and chief executive of BEA, said in a statement he was optimistic about China's growth prospects and investment opportunities in the mainland's markets.
BEA said it would use the RQFII quota for its own investment to enhance returns on its RMB funds and planned to use the quota mainly for investment in China's domestic bond and equities markets.
Yuan deposits in Hong Kong stood at 698 billion yuan ($114 billion) in June and analysts expect the pool to expand to 700-750 billion yuan by the end of the year.
China had approved a total quota of 121.9 billion yuan under the RQFII scheme as of July 30, most of which went to Chinese fund houses and brokerages.
Hang Seng Investment Management and HSBC Global Asset Management got RQFII approvals in June and July, respectively.
The Chinese government keeps a tight leash over its capital account and monitors cross-border yuan flows closely. But it aims to make the yuan basically convertible as early as 2015, with longer-term goals to turn it into a global currency on par with the dollar.
($1 = 6.1229 Chinese yuan) (Reporting by Michelle Chen; Editing by Jacqueline Wong)