China-Australia Free Trade Agreement
On 17 November 2014, China and Australia signed a Declaration of
Intent regarding the formalisation of the China-Australia Free
Trade Agreement (ChAFTA). The signing marked the conclusion of a
negotiation period that lasted 21 rounds. Both countries will now
prepare the necessary legal documents designed to implement
The ChAFTA, once in force, will provide mutually beneficial
outcomes for participants in both China and Australia's
investment management industries.
Cross-border Investment Management
China will allow Australian securities brokerage and advisory
firms to provide cross-border securities trading accounts, custody,
advice and portfolio management services to Chinese Qualified
Domestic Institutional Investors (QDIIs), which are Chinese
investors that have approval to raise funds in Mainland China, as
well as to use those funds to invest outside Mainland China through
a quota managed by the State Administration of Foreign Exchange
This change has the potential to enlarge the market for
Australian fund managers. There are currently in excess of 30 QDIIs
that Australian fund managers may be able to access as a result of
Australian Renminbi Quota Under the RQFII
China will also grant Australia a renminbi (RMB) quota under the
RMB Qualified Foreign Institutional Investor program (RQFII
Program), thereby permitting Australian financial institutions to
invest offshore RMB in Chinese onshore financial instruments.
As discussed in our recent Legal Insight "
Is the RQFII Program En Route to Australia?", this program
will allow Australian fund managers to deal directly in the
People's Republic of China (PRC) onshore securities market and
as a result, give them access to:
PRC A-shares and fixed-income bonds of PRC entities not
currently available offshore
securities in numerous fast-growing Chinese sectors, such as
healthcare, technology, multimedia and consumer sectors, not
currently listed outside the PRC
Australian Renminbi Clearing Bank
The People's Bank of China and the Reserve Bank of Australia
signed a Memorandum of Understanding facilitating the establishment
of an official RMB clearing bank in Sydney. This will provide a
direct means of facilitating cross-border RMB transactions between
Australian and Chinese entities and will consequently facilitate
the efficient operation of the RQFII Program in Australia.
Implementation of ChAFTA
The ChAFTA will enter into force once both China and Australia
have completed their domestic treaty-making processes. In
Australia, that involves the:
signing of the ChAFTA, following legal review and
tabling of the ChAFTA in the Australian Parliament for 20 joint
review of the ChAFTA by the Joint Standing Committee on
introduction of legislation and regulations to make any
necessary amendments to existing legislation.
Once these steps have occurred, China and Australia will
exchange diplomatic notes to certify that they are ready for ChAFTA
to commence and 30 days after this exchange, ChAFTA will enter into
What's Next? APEC Asia Region Funds Passport
The participating member economies of the APEC ARFP initiative
have been meeting since July to finalise a set of rules for the
ARFP, following a public consultation which closed in July this
A desirable outcome for the Australian funds management industry
will be a set of ARFP rules that will allow Australian funds
investing in Chinese onshore financial instruments through the
RQFII Program, to be offered to investors in other ARFP
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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