On 25 September 2020, the China Securities Regulatory Commission (CSRC) and other relevant authorities promulgated the Measures for the Administration of the Investment in Domestic Securities and Futures by Qualified Foreign Institutional Investors and Renminbi Qualified Foreign Institutional Investors and its implementation rules (QFI Rules), which took effect on 01 November 2020.
Upon the official launch of the QFI Rules, the Administrative Measures for Securities Investment Made in China by Qualified Foreign Institutional Investors issued by the CSRC, the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) on 24 August 2006 (QFII Rule) and the Measures for the Pilot Program of Securities Investment Made in China by RMB Qualified Foreign Institutional Investors issued by the CSRC, PBOC and SAFE on 01 March 2013 (RQFII Rule) were repealed.
The QFI Rules have made it more convenient for QFII/RQFII to invest in mainland China by merging the QFII and RQFII qualifications and system rules into one, lowering the entry threshold, relaxing access conditions, simplifying application documents, and shortening the time limit for examination and approval. Also, the QFI Rules have steadily and systematically expanded the scope of investment.
Here are other key highlights:
- QFI Rules permit QFII and RQFII to invest into almost all the products at the secondary market, including securities listed on National Equities Exchange and Quotations, private investment funds, financial futures, commodity futures and options. Moreover, QFII and RQFII are allowed to participate in bond repurchases, margin trading and short selling on stock exchanges, securities lending for refinancing purposes, REITs, and even financial derivative transactions.
- Simplified QFI application criteria make application more promising. The CSRC does not set any solid threshold of QFIs, i.e., as long as the foreign investors are legally established, being healthily operated, as well as with competent staff and sound internal structures, they may consider applying for QFI approvals.
- Simplified application documents and efficient online submission system greatly shorten the application period. As part of Chinese government’s digitalization reform, to apply for QFI qualification, an application form must be entered online through the website of the CSRC and the following application documents must be submitted to the CSRC through a domestic custodian.
There are now various channels by which foreign investors may participate in the Chinese domestic market. For example, the interconnection mechanisms such as stock connect and bond connect provide diversified and convenient investment channels for foreign investors to invest in the domestic capital market, which have an obvious crowding out effect on QFI. The QFI mechanism, especially with the substantial expansion of the investment scope, is expected to fully demonstrate its own comparative advantages in the competition with the interconnection mechanisms, and it will still be an attractive and efficient investment channel for foreign investors in the future. You can read the full alert – A long term, sustainable and effective way to invest into China on Baker McKenzie’s InsightPlus.
