The Chinese government has always held a tight grip on the cross-border movement of Renminbi (RMB), but over the last years it has been slowly easing restrictions. The latest step in this process is a revised RMB qualified foreign regime which permits offshore-raised RMB to be invested in Chinese companies by Chinese private equity funds and managers.

In 2002, the Qualified Foreign Institutional Investor (QFII) scheme was introduced to enable specified types of foreigners to use their offshore foreign currency for investment in the Mainland's securities market. In 2011, the RMB Qualified Foreign Institutional Investor (RQFII) scheme was introduced as a modified version of the QFII scheme, which facilitates the use of RMB held outside the Mainland for investment in the Mainland's securities market. The recent changes to the QFII and RQFII rules harmonise the two schemes to a large extent, and expand their scope.

The key changes under the revised rules in 2013 are the following:

  • The scope of eligible applicants has been expanded to include Hong Kong subsidiaries of Chinese commercial banks and insurance companies, and financial institutions which are registered in Hong Kong and with principal places of business in Hong Kong.
  • The scope of permitted investment has been expanded to include stock index futures and fixed income products traded on the inter-bank bond market.
  • SAFE has imposed stringent requirements on RQFIIs other than open-ended funds (e.g. investment deadline, recycle of investment quota, lock-up period, repatriation restrictions).
  • RQFIIs are required to set up separate designated accounts with onshore custodian banks for trading in domestic stock exchanges and the inter-bank bond market, and for trading of stock index futures.

Regulation reference:    The Pilot Measures on Securities Investment in Mainland China by Renminbi Qualified Foreign Institutional Investors

Issuing authorities:        China Securities Regulatory Commission (CSRC), People's Bank of China (PBOC), and State Administration of Foreign Exchange (SAFE)

Regulation reference:    The Provisions on the Implementation of the Pilot Measures on Securities Investment in Mainland China by Renminbi Qualified Foreign Institutional Investors

Issuing authority:          China Securities Regulatory Commission (CSRC)

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