A pilot scheme for qualified foreign institutional investors (“RQFIIs”) to use renminbi raised outside mainland China to invest in the mainland securities markets (“Pilot Scheme”) has been introduced. This development marks another significant step towards the internationalisation of the RMB. The Pilot Scheme Measures and their implementation rules were issued by the CSRC, PBOC and SAFE on 16 December 2011, 23 December 2011 and 04 January 2012 respectively and came after the introduction of an RMB mini-QFII scheme (please refer to our Alerts of 17 August 2011 for details); they largely follow existing QFII rules in terms of approval requirements, investment quota, permitted investment products, custodian arrangement and information disclosure.
An initial quota of RMB20 billion has been set under the Pilot Scheme and 12 securities companies and 9 fund management companies have obtained RQFII licences, according to press reports.
Highlights
- Under the Pilot Scheme, Hong Kong subsidiaries of PRC-incorporated fund management companies or securities companies may apply to CSRC for RQFII licences and to SAFE for investment quotas. An RQFII must satisfy certain qualification requirements, including: having a Hong Kong Securities and Futures Commission Type 9 (asset management) licence, already conducted asset management business and a PRC-incorporated parent company holding a securities asset management licence.
- RQFIIs are allowed to invest in (i) stocks, bonds and warrants traded on PRC stock exchanges; (ii) securities investment funds established in the PRC; and (iii) other financial instruments approved by CSRC and PBOC. RQFIIs may also subscribe in initial public offerings and secondary offerings of equity or convertible bond, or subscribe in allotment of shares. Subject to PBOC’s approval, RQFIIs may invest in the interbank bond market. Previously, the PBOC rules only allowed three types of foreign financial institutions (excluding QFIIs or RQFIIs) to access that market. Also, the Measures are silent on whether RQFIIs can trade in stock index futures for hedging purposes as QFIIs have been permitted to do since May 2011.
- At least 80% of an RQFII’s funds must be invested in fixed income securities, including bonds and fixed income funds, and not more than 20% of its funds may be invested in stocks or stock funds. The term “stock funds” is not defined under the Measures.
- It remains to be seen whether certain requirements on QFIIs (e.g. lock-up periods) would be equally applicable to RQFIIs, and whether RQFIIs would be given the same tax benefits as those available to the QFIIs (e.g. business tax exemption).
- RQFIIs may repatriate their investment returns and principal amounts, in RMB or foreign currencies, outside the PRC.
Reference:
1. Pilot Measures on Investment in Domestic Securities using Offshore RMB Funds by Qualified Foreign Institutional Investors established by Fund Management Companies and Securities Companies (基金管理公司、证券公司人民币合格境外机构投资者境内证券投资试点办法, the “Measures”)
2. CSRC’s Implementing Rules regarding the Measures (中国证券监督管理委员会关于实施《基金管理公司、证券公司人民币合格境外机构投资者境内证券投资试点办法》的规定)
3. SAFE’s Circular regarding the Measures (国家外汇管理局关于基金管理公司、证券公司人民币合格境外机构投资者境内证券投资试点有关问题的通知)
4. PBOC’s Circular regarding the Measures (中国人民银行关于实施《基金管理公司、证券公司人民币合格境外机构投资者境内证券投资试点办法》有关事项的通知)
Issuing authorities: China Securities Regulatory Commission (“CSRC”), People’s Bank of China (“PBOC”) and State Administration of Foreign Exchange (“SAFE”)
For further information regarding this Alert please contact Fang Jian, Richard Gu or Annabella Fu.
