Mainland China briefing – Jun 2019

China and Japan sign agreement for cross-border ETF investments

On 22 April 2019, the Shanghai Stock Exchange and the Japan Exchange Group signed the ETF Connectivity Agreement at the China-Japan Capital Markets Forum, which establishes a system for cross-border investments in exchange-traded funds (ETFs). A statement issued by China Securities Regulatory Commission (CSRC) (available here in Chinese) described the scheme: the east-bound leg allows Chinese fund managers to set up Shanghai-traded ETFs that invest at least 90% of assets, through the qualified domestic institutional investors (QDII) regime, in Japan ETFs; under the west-bound side, Japanese ETF managers can make investments through the qualified foreign institutional investors (QFII) regime in Chinese ETFs.

PBOC and SAFE to facilitate QFII/RQFII fixed income investments

On 10 May 2019, the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) jointly issued a consultation paper on the Issues Concerning Further Facilitating Investment by Overseas Institutional Investors in the Interbank Bond Market (available here), which aims to facilitate investment by QFIIs and renminbi qualified foreign institutional investors (RQFIIs) via the China Interbank Bond Market (CIBM). The key new rules proposed in the consultation paper are:

• Transfer of bond: a QFII/RQFII may be allowed non-trade transfers of bonds between its bond account under the QFII/RQFII regimes and its bond account under foreign investors’ direct investment regime of CIBM (Direct CIBM Investment
• Transfer of funds: a QFII/RQFII may be allowed non-trade transfers of funds between its QFII/RQFII custodian accounts and its Direct CIBM Investment accounts; and
• Simplified filing: a QFII/RQFII that invests in the CIBM via both QFII/RQFII regimes and the Direct CIBM Investment channel may only need to conduct one filing with the Shanghai Headquarters of the PBOC through its QFII/RQFII custodian bank or its settlement agent for Direct CIBM Investments.

Under current regulations, foreign investors can invest in China through various access channels, but have not been allowed to transfer or switch securities or funds between different channels. Once implemented, the new rules will achieve the interworking of the two different access channels, and should reduce the cost and simplify the process for switching investment channels.