China: The Qualified Foreign Institutional Investors In China

Last Updated: 28 October 2008


As at the end of August 2008, there were 65 "Qualified Foreign Institutional Investors" ("QFII") approved in China.  QFII was allowed into China's securities market pursuant to the Provisional Measures for Administration on Domestic Securities Investment in China by QFII ("Provisional Measures") issued by the China Securities Regulatory Commission ("CSRC") and the People's Bank of China ("PBC"), effective from 1 December 2002.  In August 2006, CSRC, PBC and State Administration of Foreign Exchange ("SAFE") promulgated the Measures for the Administration on Domestic Securities Investment in China by QFII ("Measures"), which came into force on 1 September 2006.  The Measures amended and superseded the Provisional Measures and relaxed some controls over qualifications and restrictions on the QFII program.


According to Article 6 of the Measures, an applicant for QFII shall meet the following conditions :-

1. Be in a sound financial and credit status and meet the conditions as prescribed by CSRC on asset scale and other factors;

2. The employees of the applicant shall meet relevant professional requirements of its home jurisdiction;

3. Be equipped with sound governance structure and perfect inner control system, shall undertake business according to the relevant regulations, and has never been subject to any substantial penalty by the supervisory organ in its home jurisdiction;

4. Its home jurisdiction shall have a sound legal and regulatory system and its securities supervisory organ has signed memorandum of cooperation and understanding with CSRC and has maintained efficient regulatory and co-operative relationship with CSRC; and

5. Other conditions as prescribed by CSRC in the light of the principle of prudent supervision.

Requirement of Asset Scale for the QFII

The Measures lower the qualification and the asset scale requirement for some QFII applicants as follows :-

1. for fund management institutions : having operated a fund business for over 5 years with the most recent accounting year managing assets of not less than US$5 billion (as opposed to US$10 billion in the past);

2. for insurance companies : having operated insurance business for over 5 years (as opposed to 30 years in the past) and managing securities assets of not less than US$5 billion (as opposed to US$10 billion) in the most recent accounting year;

3. for securities companies : having operated securities business for over 30 years with paid-in capital of not less than US$1 billion and managing securities assets of not less than US$10 billion in the most recent accounting year;

4. for commercial banks : ranking among the top 100 of the world in terms of total assets for the most recent accounting year and managing securities assets of not less than US$10 billion; and

5. for other institutional investors (pension funds, charitable funds, donation funds, trust companies, government investment management company, etc), which were not provided for in the Provisional Measures, should have operated for over 5 years managing securities assets of not less than US$5 billion in the most recent accounting year.


According to the Measures and the related circulars issued by CSRC, a QFII may apply to open three types of securities accounts at the securities registration and settlement institution, each corresponding to a different RMB special account approved by SAFE.

The actual holder accounts refer to the accounts opened in the name of QFII itself.

If the QFII manages assets for its clients, it shall open a nominal holder account. According to Article 16 of the Measures, the nominal shareholder shall, within 8 working days of the end of each season, report the name, registration place, asset arrangement and securities investment status of the actual investors or funds to CSRC and stock exchange.

If a QFII establishes a securities account for public funds, insurance funds and others as set out in the Measures, the account may be opened in the name of "QFII+fund".


The Measures provide that QFII may invest in RMB-denominated financial instruments, including listed stocks, listed bonds, listed warrants and securities investment funds, which are of great interest to foreign investors.

With an aim to better regulate the investment market, the Measures stipulate that for domestic securities investments, QFIIs shall observe the following requirements :-

1. Shares held by each underlying foreign investor (as opposed to the QFII as required in the Provisional Measures) through QFII in one listed company should not exceed 10% of the total outstanding shares of the company; and

2. Total shares held by all foreign investors in one listed company should not exceed 20% of the total outstanding shares of the company.


According to the related regulations issued by SAFE, the investment quota for each QFII is originally US$50 million, minimum, and US$800 million, maximum. SAFE may adjust the aforesaid investment quota in accordance with the situation of the capital market and the balance of international payments. The total investment quota for all QFIIs was raised to US$30 billion since December 2007.


Notwithstanding the additional administrative requirements, the Measures permit more foreign institutional investors such as pension funds and trust companies to engage in the securities business on the Chinese mainland.  The lowered requirements for market entry for fund management and insurance institutions also allow QFIIs to provide their clients with added opportunities to share in the growth of the Chinese market.


If you have any question about the above Measures or other issues on foreign direct investments, joint ventures, mergers and acquisitions in Mainland China, experienced lawyers in our China Business Department will be happy to assist you.

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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