The State Administration of Foreign Exchange ("SAFE")
issued a Notice on Foreign Exchange Administration Issues
concerning Investment in the Interbank Bond Market by Foreign
Institutional Investors (the "Notice") on May 27,
2016, which further clarifies the supervision and administration of
the investment in the interbank bond market by foreign
Since 2010, the People's Bank of China ("PBOC")
and SAFE have promulgated several regulations on the investment in
the interbank bond market by foreign institutional investors,
including Notice of the People's Bank of China on Issues
Concerning the Pilot Program on Investment in the Interbank Bond
Market with RMB Funds by Three Types of Institution Including
Overseas RMB Clearing Banks (Yinfa  No. 217),
Announcement on Matters concerning Permitting the Access of
Foreign Central Banks and Similar Institutions to China's
Inter-Bank Foreign Exchange Market (PBOC Announcement 
No. 31 Announcement), Announcement on Relevant Matters
concerning Further Improvement in the Investment in the Interbank
Bond Market by Foreign Institutional Investors (PBOC
Announcement  No. 3 Announcement) and the Notice, which
provide continuously opening up of the interbank bond market to
foreign central banks and further to other foreign financial
Among the regulations mentioned above, PBOC Announcement 
No. 3 Announcement (the "No. 3 Announcement") provides
the most practical rules for foreign institutional investors to
engage in interbank bond market. This Announcement was effective on
February 17, 2016, which includes 21 provisions with respect to
scope and qualifications of the foreign institutional investors;
qualifications, services and duties of the local settlement agents;
and exit procedures.
To further improve the supervision and administration in this
regard, the Notice provides that the foreign institutional
investors are required to register with SAFE's capital account
information system through their settlement agents. According to
the No. 3 Announcement, the relevant foreign institutional
investors hereof refer to commercial banks, insurance companies,
securities companies, fund management companies and other asset
management institutions, as well as other various types of
financial institutions that meet relevant requirements and are
registered and established outside the territory of the
People's Republic of China, pension funds, charitable funds,
donation funds and other mid-to-long-term institutional investors
recognized by PBOC.
In addition, the Notice requires that the currency used in
inward and outward remittances should remain consistent in
principle. To be more specific, per one certain foreign
institutional investor, the ratio of foreign exchange to RMB in
outward remittances (the "outward currency ratio") is
required to basically stay the same as the ratio of foreign
exchange to RMB in inward remittances (the "inward currency
ratio"), and the variation rate between the outward currency
ratio and the inward currency ratio should be no more than 10%.
Apart from the aforementioned requirements, the Notice further
stipulates that no maximum foreign exchange limitation would be
imposed on the foreign institutional investors. That said, the
foreign institutional investors may directly instruct their local
banks to conduct business with respect to inward and outward
remittances, and exchange settlement and purchase after their
registrations with SAFE. No separate approval or consent from SAFE
Also on May 27, 2016, the PBOC Shanghai Headquarter published
the Detailed Rules for the Implementation of Recordation
Administration of Investment in the Interbank Bond Market by
Foreign Institutional Investors to facilitate the
implementation of the No.3 Announcement. These detailed rules
provides more qualification requirements on the settlement agents
who are authorized to act on behalf of the foreign institutional
investors in the interbank bond market.
China is on its way to set up a preliminary regime to supervise
and manage the investment from foreign institutions in the domestic
interbank bond market. Even though the scope of qualified investors
is still limited to financial institutions currently, the
thresholds to interbank bond market are likely to be simplified and
lowered in the future in order to attract more foreign capitals and
facilitate domestic financing.
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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