News & Insights

Mainland China briefing – July 2018

Relaxation of QFII and RQFII rules

On 12 June 2018, China’s foreign exchange regulator, the State Administration for Foreign Exchange (SAFE), released the Provisions on the Administration of Foreign Exchanges in Domestic Securities Investments by QFII (available here in Chinese), and China’s central bank, the People’s Bank of China (PBOC), released the Circular of the PBOC and the SAFE on Issues Concerning the Administration of Domestic Securities Investment by RQFII (available here in Chinese).

The key changes are as follows:

  1. Removing the monthly 20% repatriation limit imposed under the QFII scheme.
  2. Removing the lock-up restrictions applicable to the investment principal under both the QFII and RQFII schemes.
  3. Allowing QFIIs and RQFIIs to enter into forex hedging transactions in China to hedge currency risks deriving from investing in China.

MSCI index inclusion of China’s A-shares

On 1 June 2018, 226 of China’s A-shares were officially included in the Morgan Stanley Capital International Emerging Markets Index (MSCI index), a widely-used index representing over 85% of all emerging market equity fund assets. Funds tracking the MSCI index need to buy the included A-shares to track the performance of the newly constituted index. Under the partial inclusion plan, the included A-shares currently represent 0.37% of the index; this September the weighting will be increased to 0.8 %.

As China’s stock markets are not fully open to foreign investors, the main channels to purchase shares are the QFII, RQFII and the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect schemes. To embrace the inclusion debut, the daily quota for the respective northbound trading links under the Stock Connect schemes was quadruped to RMB 52 billion in May, and the monthly 20% repatriation limit imposed under the QFII scheme and the three-month lock-up restrictions applicable to investment principal under both the QFII and RQFII schemes were removed in June.

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