(Jan 29): China has tightened a cross-border investment programme to limit where global managers can allocate funds for mainland clients, a move that potentially curbs capital going into popular markets like the US, according to people familiar with the matter.
The restrictions are for the decade-old US$86 billion ($108.5 billion) Mutual Recognition of Funds scheme, which allows mainland Chinese to invest in Hong Kong-based funds and vice versa. The move is aimed at protecting retail investors flocking to the scheme since last year and applies only to new funds, the people said, asking not to be identified because the matter is private.
In guidance issued to programme participants of Hong Kong funds in the second half of 2025, the China Securities Regulatory Commission said it would beef up requirements to ensure portfolios are diversified across asset classes and geographies, based on the risk tolerance for retail investors, according to a document seen by Bloomberg News. No such stipulations existed previously, the people said.
In separate verbal communications, the regulator told applicants that no single country can make up more than 50% of an underlying fund, the people said, adding that Hong Kong was excluded from the cap. There are also limits on high-yield securities in a fund, they added. The guidelines don’t apply to existing products.
China introduced the MRF in 2015, allowing fund raising of as much as 600 billion yuan as part of efforts to open up its capital markets and give retail investors more access to overseas assets. The latest move suggests authorities are now seeking more control of such investors’ exposure abroad, a move that could slow global asset managers’ take-up of the programme.
The tightening contrasts with last January, when the MRF relaxed a sales cap, allowing 80% of a fund to be sold in the Chinese mainland, versus 50% before. That led to a flood of demand from mainland investors seeking to tap Hong Kong-based products. Fidelity International and JPMorgan Asset Management were among firms that applied to launch products after the easing.
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The latest guidance limits investment managers’ options to apply certain strategies. For example, global equity and bond funds that invest more than half of their money in the US are not allowed, the people said. Bond funds have been popular among mainland investors seeking bigger returns in markets where interest rates are higher than in China.
Fidelity declined to comment. The CSRC and JPMorgan Asset Management didn’t respond to requests for comment.
“The relaxation last January has greatly boosted sales of the MRF funds, led by bond strategies,” said Ivan Shi, a director at Z-Ben Advisors Ltd in Shanghai. It shows that mainland investors were looking for returns amid yuan depreciation pressure and concerns about the economic recovery, he said.
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Mainland Chinese poured a record 96.4 billion yuan into Hong Kong funds last January, after the sales cap was eased. JPMorgan Asset Management, which runs seven out of the 44 products in the MRF programme, closed subscriptions for two bond funds that month as mainland investors quickly snapped up shares. The JPMorgan Global Bond fund invests nearly 40% of the allocations in the US, according to the latest disclosures.
In the current application pipeline, one of five funds exceeds the 50% cap for a single market, according to available disclosures, although that is for Hong Kong, which the people say isn’t subject to the restriction.
Mainland investors can keep pouring money into existing global strategies, but the 80% cap on sales means the pace of new launches depends on how quickly a fund can distribute the rest in Hong Kong.
Hong Kong-based funds in the programme manage more than 250 billion yuan in total, with 60% in fixed-income strategies, according to research from Mercer. Onshore investors have shown a stronger appetite for offshore fixed-income and high-dividend assets given the relatively low domestic risk-free rate, said Rupeng Chen, who leads North Asia wealth for the consultancy.
Uploaded by Magessan Varatharaja
