China: Opening of A-Share Market in the People´s Republic of China

Last Updated: 16 June 2003

Until fairly recently, foreign investors in the People’s Republic of China ("PRC") have been allowed to trade only in the dollar-denominated B-Share market, which makes up a fraction of the traded securities on the PRC’s Shanghai and Shenzhen stock exchanges. Prior to December 1, 2002, only PRC nationals were allowed to trade in the yuan-denominated A-Share market which is comprised of approximately 1,200 companies, which collectively have a market capitalization reported to be approximately US$500 billion.

A recent joint circular issued by the China Securities Regulatory Commission ("CSRC"), the Ministry of Finance and the State Economic and Trade Commission ("SETC") announced China’s Qualified Foreign Institutional Investors ("QFII") program, which lifts the ban on foreign investment in the A-Share market, including listed A-shares as well as listed treasury, convertible and corporate bonds (collectively, "A-Shares"). The new regulations became effective December 1, 2002 and grant unprecedented access to the A-Share market to foreign investors. According to the Assistant Chairman of CSRC, several large European, Asian and U.S. banks and investment banks have expressed interest in applying for QFII qualification.

As discussed below, the PRC central government continues to impose severe restrictions on foreign investment in the A-Share market, including limitations on which entities are qualified to invest in the market and restrictions on repatriation. However, as the PRC central government relaxes its requirements, this new program will likely boost foreign mergers and acquisitions activities in PRC domestically listed firms and increase participation by foreign investors and advisors in this market.

Who Can Invest in A-Shares

Only certain institutional investors who meet the QFII requirements are allowed to invest in A-Shares on the Shanghai and Shenzhen stock exchanges.

To qualify under QFII, the investor must be a foreign fund manager, insurance company, brokerage, bank or other financial institution approved by CSRC and the State Administration of Foreign Exchange ("SAFE"). In addition, the securities regulators of the investor’s home jurisdiction must have in effect a memorandum of understanding with CSRC. Some of the QFII requirements include the investor being in good standing in its home jurisdiction and meeting, among other criteria, one of the following experience and asset requirements:

Foreign Fund Managers – industry experience of over five (5) years and management of assets of not less than US$10 billion.

Foreign Insurance Companies and Brokerages – industry experience of over thirty (30) years, minimum paid-in capital of at least US$1 billion and management of securities-related assets of not less than US$10 billion.

Foreign Commercial Banks – in the last fiscal year, the investor must have been one of the one hundred (100) largest banks in the world in terms of assets and had management of securities-related assets of not less than US$10 billion.

If the investor falls into one of the categories described above, the investor may apply to participate in the QFII program. The investor’s application to CSRC includes a written application, a custodian agreement (described below) and certain financial information about the investor. CSRC may take up to fifteen (15) business days to either grant or reject the application. Once the application is accepted by CSRC, the same application goes to SAFE for its review and SAFE may take up to another fifteen (15) business days to review the application. In all, the QFII application review process by CSRC and SAFE may take up to thirty (30) business days. However, in order to attract long and mid-term equity investments, certain pensions funds, insurance funds and mutual funds that meet the eligibility standards described above are expected to be given priority in the QFII approval process.

How to Invest in A-Shares

The trading in A-Shares by a qualified investor is done through a custodian (which may be a PRC commercial bank or a PRC branch of a foreign bank). Among other requirements, the custodian must be a financial institution that routinely handles custodial matters and has paid-in capital of not less than US$1 billion. The custodian must have its eligibility approved by CSRC, SAFE and People’s Bank of China ("PBOC"). The custodian is in charge of holding all of the investor’s investment assets in the PRC, accounting for the investor’s investment transactions in the PRC and monitoring the investor’s investment activities in the PRC. The custodian is required to report any illegal trading activities by the investor to CSRC and SAFE.

What Restrictions Apply to A-Shares

Any one qualified investor cannot have more than a ten percent (10%) equity interest in any PRC domestically listed company and the total permitted foreign equity interest in any domestically listed company cannot exceed twenty percent (20%) of such company’s capitalization. Certain industries are also off-limits; foreign investors may not purchase stocks of listed companies engaged in an industry not open to foreign investment under the Industry Catalogue for Foreign Investment, which includes, for example, certain traditional medicine manufacturers.

Also, the custodian accounts may only be yuan-denominated accounts and the funds in such accounts are subject to a one-year lock-up period during which the foreign investor cannot remit overseas its investment principal. Although after the lock-up period the foreign investor may remit its principal investment overseas, a maximum of twenty percent (20%) of the principal investment may be remitted, on only one (1) occasion, during any three (3) month period. Investments made through closed-end China funds can be remitted overseas after three (3) years, but a maximum of twenty percent (20%) of the principal investment may be remitted on only one (1) occasion during any one (1) month period.

Under the QFII program, all repatriations of investment principal and realized profits are subject to SAFE adjustments based on the PRC central government’s foreign exchange needs. However, our discussions with senior officials at CSRC indicate that SAFE would only further restrict repatriations in extreme cases.


Although the immediate effect of the opening of the A-Share market to foreign investors is unclear, the new QFII program is a signal of China’s progress towards integrating its financial system into the global market. If the results of the QFII program appear positive to the PRC central government, investors can perhaps look forward to a further relaxing of the requirements to allow wider access to the A-Share market for overseas investors.

Client Alert is published solely for informational purposes and should in no way be relied upon or construed as legal advice. For specific information on recent developments or particular factual situations, the opinion of legal counsel should be sought. Paul, Hastings, Janofsky & Walker LLP is a limited liability partnership.

© 2003 Paul, Hastings, Janofsky & Walker LLP.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions