Strategy Management of Institutional Investors: Under China's QFII Regimes

Introduction

Since the beginning of the 21st century, with China joining the World Trade Organization, China's opening-up has entered a new stage (Liu and Ma, 2020). Joining the wave of economic globalization, China has lived up to expectations and seized this opportunity, opening the door of China's capital market to the world, and greatly growing the domestic economy. At the same time, however, China is also facing great challenges.

The opening of China's capital market has two aspects: one (“going out”) is to allow Chinese companies to join the global capital market; the other is to allow foreign investors to enter the Chinese capital market (Zhen, 2013). The economic “going out” policy formulated by the Chinese government has been continuously modified and improved, and Chinese enterprises have bright prospects for “going out” (Lyles et al., 2022). However, compared to lifting restrictions to allow Chinese investors to “go out”, the Chinese government appears to be more cautious about opening up China's capital markets to foreign investors. From the end of the 20th century to the beginning of the 21st century, due to the serious shortage of foreign exchange in China, the Chinese government began to guide foreign capital to adapt to the domestic economic development and securities market so as to promote the healthy development of the local capital market (Lin and Schramm, 2003), but at the same time, foreign capital would reduce the independence of the local economy. To minimize this impact, China has introduced the QFII system, which implemented the necessary restrictions and guidance on foreign investment.

On November 5, 2002, with the approval of the State Council, the China Securities Regulatory Commission and the People's Bank of China issued the Interim Measures on the Administration of Domestic Securities Investment by Qualified Foreign Institutional Investors, which came into effect on December 1 of that year. This marked the start of the QFII system’s official operations in China. In the following 20 years, the Chinese government has continuously revised and improved this system (Wang et al., 2021b). With the liberalization of investment restrictions and investment quotas, the number of overseas institutions that choose to enter the Chinese capital market as QFIIs continues to increase. As of April 2022, 689 qualified foreign investors have entered domestic investment. In response to the adjustment of China's policies, foreign investors wanting to seize the opportunity to participate in China's domestic market should adjust their investment strategies in a timely manner and tap into the investment potential of QFIIs in China. In order to explore the potential of QFII investment in China, this paper will focus on the source regions of QFII investment and make suggestions on the current investment potential of QFII and RMB Qualified Foreign Institutional Investors (RQFII) in China. This article first examines the literature from 2017 to 2022 exploring the theories and methods used to study foreign institutions investing in China, with a focus on three recurring themes in the literature—global economic policy uncertainty, spillovers, and portfolio strategy. The uncertainty of global economic policies provides more incentive for QFIIs to enter the Chinese market, which can enhance the confidence of QFIIs from all over the world to invest in China.