On 28 July 2012, the China Securities Regulatory Commission
("CSRC") released a revised regulation
on the Qualified Foreign Institutional Investor
("QFII") program with the aim of making
it easier for QFIIs to invest in China's capital market. The
QFII program was introduced in 2002 as the primary program for
foreign investors to enter China's capital market. Under this
program, a QFII applicant may apply for a licence from CSRC and an
investment quota from the State Administration of Foreign Exchange
("SAFE") to invest in China's
domestic securities market. Ever since the program was introduced,
China has been putting efforts into lowering the barriers for
QFIIs' entry. The important changes brought about by the new
regulations are highlighted below.
The minimum qualification requirements for QFII applicants are
1. For securities companies, the track record period requirement
is lowered from 30 years to five years; the requirement for paid-up
capital of no less than USD 1 billion is replaced with the
requirement for equity of no less than USD 500 million. The minimum
requirement for assets under management has been lowered from USD
10 billion to USD 5 billion.
2. For commercial banks, the banks should have been in the
banking business at least 10 years and have at least USD 300
million Tier 1 capital, and the minimum requirement for assets
under management is lowered from USD 10 billion to USD 5
3. For foreign asset-management institutions, insurers and other
institutional investors, such as pension funds and
government-backed investment companies applying for QFII licences,
the minimum requirement for their assets under management has been
lowered from USD 5 billion to USD 500 million.
Applicants are required to apply online, though submission of
hard copies to the CSRC is still required.
The ceiling is raised to 30% from the current 20% on the
combined stockholding by all QFIIs in any listed company in
China's domestic RMB-denominated A-share market.
A QFII may now open separate nominee accounts for differently
In a separate CSRC statement about the new regulation, QFIIs
may now invest in China's fast-expanding interbank bond market
and newly built high-yield bond market.
Despite the positive changes brought by the new regulation,
there are still obvious restrictions on and uncertainties for
QFIIs. For example, it is still not that easy for QFIIs to transfer
funds in and out of China, and the tax position of QFIIs in China
has not been clarified. Many of these issues are clearly not within
the jurisdiction of the CSRC and, therefore, foreign investors are
expecting more concerted efforts from the various Chinese
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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