China capital markets Be prepared to seize the investment opportunities INVESTOR GUIDE China capital markets Be prepared to seize the investment opportunities | 2 China is opening up new doors to investment China is widely regarded We are the perfect partner as one of the most to help you take advantage attractive markets globally of the opportunities in for investors. Yet, many China's capital markets. corporate and institutional Recognised for our businesses may be unsure strength, experience and of where the opportunities unrivalled network, we are lie or how to take here to support you. advantage of them. The good news is that in recent years, China has been reforming its capital markets, liberalising its financial system and internationalising its currency to encourage more foreign corporates and institutional investors to participate in its economy. China capital markets Be prepared to seize the investment opportunities | 3 Seizing China’s rising potential China's economy is more open and globally connected than ever before, with strong emphasis on trade and investment openness, and emerging new channels to help investors access its domestic capital markets. Did you know? China’s bond market Equity access quota is gradually becoming a part USD RMB of the global asset allocation for fixed income investors 94.5bn 589bn China’s capital markets QFII (Qualified RQFII (RMB Qualified Foreign Institutional Foreign Institutional are among the biggest globally Investor) quota issued Investor) quotas issued yet it is largely funded by RMB bond issuance RMB domestic investors in 2016, up 56% daily trn from 2015 northbound China’s equity market: China’s bond market: 36 26bn quota world’s world’s RMB daily Almost half of southbound nd rd global fixed 21bn quota largest largest income investors 2 3 for Shanghai and Shenzhen – Hong Kong (by total market cap) 49% plan to increase Stock Connect Programmes 1 exposures to China in (as of Sep 2017) the next 12 months 4 China’s equity market 3 Internationalisation of RMB listed RMB is the 1,355 companies HSBC Qianhai is the most actively used on the Shanghai Stock Exchange majority rd currency in trade finance (as of Sep 2017) st foreign owned 3 (as of Oct 2016) listed 1 and the 2,054 companies securities company in China most used global on the Shenzhen Stock Exchange th payment currency (as of Oct 2017) (with a 51% stake) (as of Oct 2017) 2 6 5 1 World Federation of Exchange, Dec 2016; Bank of International Settlements, Mar 2017 4 China Securities Regulatory Commission, Sep 2017; Hong Kong Stock 2 Shanghai Stock Exchange, Sep 2017; Shenzhen Stock Exchange, Oct 2017 Exchange, Sep 2017; State Administration of Foreign Exchange, Sep 2017 3 People's Bank of China, Sep 2017; FinanceAsia's Asian Bond Investor Survey, Nov 2017 5 Swift 2017 Increasing connectivity China capital markets Be prepared to seize the investment opportunities | 4 over time What you need to know China is gradually opening up its capital markets, • China has introduced simplified • Easier cross-border trading channels to enter the CIBM between Hong Kong, Shanghai with simplified channels, enlarged quotas and easier and Shenzhen stock markets access for foreign financial institutions and investors. • China has enlarged QFII and RQFII quotas to meet increasing • Easier access to interbank foreign demand and has improved exchange market to hedge RMB the repatriation processes foreign exchange exposure with onshore counterparties 2002 June 2017 Qualified Foreign 2016 Inclusion of A-shares into Institutional Investor Scheme MSCI’s Emerging Markets (QFII) launched China Interbank Bond Market Index is announced (CIBM) Direct launched Opening up China’s A-share 2014 To be implemented in 2018, driving Giving foreign financial institutions market to foreign investors for Shanghai-Hong Kong Stock greater demand by foreign investors access to a wide range of fixed income the first time Connect launched for onshore exposure instruments in China’s bond market Providing a new route into China’s largest stock exchange + ++ 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2011 October 2016 RMB Qualified Foreign Institutional Inclusion of RMB into the International Investor Scheme (RQFII) launched Monetary Fund’s Special Drawing Right currency basket RMB version of QFII officially launched, allowing onshore securities to be traded RMB now makes up 10.92% of the basket 2015 July 2017 December 2016 Bond Connect launched Mutual Recognition of Funds (MRF) launched Shenzhen-Hong Kong Stock Connect launched Allowing overseas investors to trade on the CIBM with their usual international methods Providing mainland China and Providing access to a market that is home to many via the Connect platform and settle bonds Hong Kong products with new "new economy stocks" in sectors like technology, more simply via Hong Kong cross-border mobility media and healthcare China capital markets Be prepared to seize the investment opportunities | 5 Investing in China’s capital markets With the further opening up of the onshore capital market, offshore investors can now access China’s equity and bond markets via a variety of schemes. The schemes are designed for different types of investors and products. Applicable products Eligible investors Dealt currency* Asset allocation • Exchange-listed A-shares, bonds and warrants • Overseas asset management Onshore CNY No restriction on QFII • Fixed income products traded in interbank bond market companies, insurance asset allocation companies, securities Scheme • Securities investment funds firms, banks, funds, • Index futures (for hedging only) government agencies • Subscription to initial public offerings, additional issuance, rights issues and convertible bond issuance • Exchange-listed A-shares, bonds and warrants • Qualified financial Onshore CNY No restriction on Inbound RQFII • Fixed income products traded in interbank bond market institutions in designated asset allocation offshore RMB markets Investment Scheme • Securities investment funds • Index futures (for hedging only) • Subscription to initial public offerings, additional issuance, rights issues and convertible bond issuance • Cash bonds in interbank market, including government • Type 1: Central banks, monetary Onshore CNY and No restriction on bonds, People’s Bank of China (PBoC) bills, financial authorities, international foreign currency asset allocation bonds, commercial paper, medium-term notes, financial organizations, bond forwards, bond lending and other instruments sovereign wealth funds • Derivatives such as bond forwards, bond lending, • Type 2: RMB clearing CIBM interest rate swaps and forward rate agreements banks, overseas RMB Scheme • Type 2 and 4 investors are only allowed to invest in participating banks derivatives for hedging purposes; type 3 investors are • Type 3: QFIIs and RQFIIs only allowed to invest in cash bond and certificates • Type 4: Other foreign of deposit; no restriction for type 1 investors institutions *CNY refers to onshore RMB and CNH refers to offshore RMB. China capital markets Be prepared to seize the investment opportunities | 6 Investing in China’s capital markets Applicable products Eligible investors Dealt currency Asset allocation Inbound • Fixed Income instruments in interbank market, • Central banks, monetary CNH or CNY No restriction on Investment including government bonds, PBoC bills, authorities, international (dealt offshore) asset allocation financial bonds, commercial paper, financial organizations, Bond medium-term notes and other instruments sovereign wealth funds Connect (The initial phase of Bond Connect only supports Northbound • Commercial banks, insurance Trading by institutional professional investors) companies, securities firms, asset management companies, other wealth management and other financial institutions Northbound Northbound CNH N/A • Constituent stocks of SSE180 index and SSE 380 index • All Hong Kong and • Constituent stocks of SZSE Component Index overseas institutional and China Stock and SZSE Small/Mid Cap Innovation Index with individual investors Two-way Connect market capitalisation not less than RMB 6 billion Southbound Investment Southbound • Qualified mainland investors • H-shares in LargeCap index and Mid-Cap index (Remarks: ChiNext participation is limited • H-shares in SmallCap index with market to institutional professional investors) capitalisation not less than HKD 5 billion • Dual-listed A and H shares on SSE or SZSE and SEHK • General equity funds • General investors for publicly N/A Funds sold in offered funds in mainland Hong Kong Mutual Fund • Bond funds China and offshore markets cannot be Recognition • Mixed funds invested mainly (MRF) • Unlisted index funds in Hong Kong, • Physical index-tracking exchange traded funds and vice versa China capital markets Be prepared to seize the investment opportunities | 7 We know the way With our unrivalled heritage in China together with our global presence, leading service and financial expertise, we can show you and your business the way. Global Leading Leading network international international with over bank in bank for 3,900 China RMB offices We are the leading international bank with We have established RMB trade the largest onshore network in China and settlement capabilities across more across 67 countries and territories. 24 China desks around the world. than 50 markets globally and dedicated RMB experts in key offshore centres. China capital markets Be prepared to seize the