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China Publishes Regulation To Relax QFII Rules

by Mary Swire, LawAndTax-News.com, Hong Kong

01 August 2012


Following on from the expansion of the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme in Hong Kong in April this year, the China Securities Regulatory Commission (CSRC) has now issued revised regulations to ease the operation of the domestic Qualified Foreign Institutional Investor (QFII) programme for foreign institutional investors.

In order to increase more long-term investors into the Chinese capital markets, the CSRC will reduce the QFII’s qualification requirements so that foreign institutions will need to have assets under management of only USD500m, rather than the previous USD5bn, while they will also need to have at least two years of local presence, and not the currently-required five years.

In addition, QFIIs will be able to hold 30% of a Chinese listed company, instead of the present 20% limit, and they will also be able to invest in the interbank bond and private placement bonds issued by small and medium-sized enterprises.

In April this year, the CSRC increased total QFII quotas to USD80bn from USD30bn. It has, to date, granted QFII licenses to 172 foreign investors since the program started in 2002, and has confirmed that it will continue to accelerate further licence approvals wherever possible.

The CSRC’s objective is to increase the operation of the QFII programme, so that it provides a significant stimulus to the attraction of foreign capital investment into the Chinese economy.

In like manner, since it was launched as a pilot in December last year, the RQFII programme has been developed hand-in-hand with the QFII scheme. RQFII status is granted to qualified Chinese fund managers and securities companies to allow their Hong Kong subsidiaries to channel RMB raised in Hong Kong to invest directly in the China bond and equity markets.

At the same time as the increase to the QFII quotas in April, the RQFII threshold was also increased from the initial RMB20bn (USD3.13bn) to RMB50bn, as it had proved, to the CSRC’s satisfaction, that it could also play an active role in expanding the openness of the Chinese capital market, promoting the internationalization of the RMB, and consolidating and enhancing Hong Kong as an international financial centre.

That was followed, in July 2012, by the world’s first RQFII A-share ETF which was listed on the Hong Kong stock exchange. Within the RQFII investment threshold, an RQFII A-share ETF seeks to track the performance of an A-Share index by channelling RMB raised outside the Mainland to invest directly in a portfolio of A-shares, which replicates the performance of the underlying A-share index.

A comprehensive report in our Intelligence Report series giving a country-by-country analysis of offshore investment funds, stock exchanges and trusts, with an analysis of the US QI regime, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp
TAGS: investment | business | law | capital markets | investment funds | equity investment | China | offshore | Hong Kong | regulation

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