Table 3. Measures to Support RMB Market Development in Hong Kong SAR June 2007 RMB risk management limit introduced by the HKMA December 2010 Net open position(NOP)introduced and set at 10 percent of banks' RMB assets and liabilities(whichever is higher July 2011 Overall NOP maintained at 10 percent but deliverable forward positions in the opposite directions are allowed to offset any excess NOPs January 2012 Doubling of RMB NOP limit from 10 percent to 20 percent 20 percent RMB NOP limit ended. Banks allowed to set their own RMB NOP limit in consultation with the hKma une 2012 The RMb risk management limit was replaced by a 25 percent RMB liquidity ratio computed on the same basis as the statutory liquidity ratio Apl2013RMBNopimtremovedandthe25percentminimumiquidityratioforRMBlifted B. The Impact of liberalization Measures on Mainland Capital Flows Mainland China's capital account liberalization strategy follows a gradual process aimed at avoiding the volatility in capital flows with the following features Liberalization of direct investment ahead of portfolio investments Liberalization of capital inflows to a greater extent than outflows, Measures are typically first implemented as a pilot on a reduced scale to test their impact and then expanded to cover more economic sectors and regions Liberalization measures often involve a quota system or the need for approval of transaction by authorities'(often over a threshold size ) and Implementation involves close monitoring of flows to assess the effect of measures These features are reflected in the expansion in the gross inflow and outflows in Chinas alance of payments(Figure 8)and capital account liberalization measures listed in Table 2 This expansion has been relatively smooth despite the global financial crisis. Private capital inflows have expanded more than outflows, with FDI making up a large portion of these inflows. In contrast, equity inflows and outflows have been relatively small, reflecting th quota system imposed under the Qualified Domestic Institutional Investor(QDII) and Qualified Foreign Institutional Investor(QFID schemes QFII scheme allows specified foreign investors to make portfolio investments inside Mainland China while QDII scheme permits Mainland investors to make portfolio investments outside Mainland China 1111 Table 3. Measures to Support RMB Market Development in Hong Kong SAR June 2007 RMB risk management limit introduced by the HKMA December 2010 Net open position (NOP) introduced and set at 10 percent of banks’ RMB assets and liabilities (whichever is higher) July 2011 Overall NOP maintained at 10 percent but deliverable forward positions in the opposite directions are allowed to offset any excess NOPs. January 2012 Doubling of RMB NOP limit from 10 percent to 20 percent May 2012 20 percent RMB NOP limit ended. Banks allowed to set their own RMB NOP limit in consultation with the HKMA June 2012 The RMB risk management limit was replaced by a 25 percent RMB liquidity ratio computed on the same basis as the statutory liquidity ratio April 2013 RMB NOP limit removed and the 25 percent minimum liquidity ratio for RMB lifted B. The Impact of Liberalization Measures on Mainland Capital Flows Mainland China’s capital account liberalization strategy follows a gradual process aimed at avoiding the volatility in capital flows with the following features:  Liberalization of direct investment ahead of portfolio investments;  Liberalization of capital inflows to a greater extent than outflows;  Measures are typically first implemented as a pilot on a reduced scale to test their impact and then expanded to cover more economic sectors and regions;  Liberalization measures often involve a quota system or the need for approval of transaction by authorities’ (often over a threshold size); and  Implementation involves close monitoring of flows to assess the effect of measures. These features are reflected in the expansion in the gross inflow and outflows in China’s balance of payments (Figure 8) and capital account liberalization measures listed in Table 2. This expansion has been relatively smooth despite the global financial crisis. Private capital inflows have expanded more than outflows, with FDI making up a large portion of these inflows. In contrast, equity inflows and outflows have been relatively small, reflecting the quota system imposed under the Qualified Domestic Institutional Investor (QDII) and Qualified Foreign Institutional Investor (QFII) schemes.4 4 QFII scheme allows specified foreign investors to make portfolio investments inside Mainland China while QDII scheme permits Mainland investors to make portfolio investments outside Mainland China