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Deacons is firmly at the forefront of the liberalisation of Mainland China’s asset management sector. We act continually for both retail and private investment funds investing into Mainland China, as well as representing Mainland China entities on outbound work.
The QFII and RQFII programmes have established themselves as a leading route for international funds to invest in the Chinese capital markets. Since 2002 the Qualified Foreign Institutional Investor (QFII) programme has been a success, swiftly establishing itself as the favoured route for overseas investors to gain exposure to Mainland China’s domestic capital markets. It is mirrored by the Qualified Domestic Institutional Investor (QDII) programme, which provides domestic investors with access to offshore securities and bond markets. In 2011, the RMB Qualified Institutional Investor (RQFII) scheme was introduced as part of the RMB internationalisation drive. Mainland China regulators have been amending the rules to improve the QFII/RQFII programmes. Since June 2018, repatriation of capital and profits by QFII/RQFII were no longer subject to lock-up periods or size limits. Since June 2020, the investment quota restriction for QFII/RQFII has been uplifted. By November 2020, the QFII and RQFII programmes were merged into one single programme – qualified foreign investors (QFI) – with the eligibility requirements relaxed and the investment universe expanded.
In addition to the enhanced QFI regime, Mainland China has launched several cross-border investment programmes in recent years to further open up its financial market. Such programmes mainly include the following:
The Stock Connect programme comprises the Shanghai-Hong Kong Stock Connect launched in 2014 and the Shenzhen-Hong Kong Stock Connect launched in 2016. Aiming to achieve mutual stock market access between Mainland China and Hong Kong, it allows Mainland Chinese and Hong Kong investors to trade eligible stocks in each other’s markets through the trading and clearing facilities of their home exchanges. It launched with fewer restrictions than QFII / RQFII in terms of lock-up and repatriation at that time, and has proven to be an effective and popular market access channel. Recently, Mainland Chinese and Hong Kong stock exchanges have expanded the scope of eligible stocks traded under the Stock Connect scheme.
MRF (Mutual Recognition of Funds)
The MRF programme was launched in 2015, through which the China Securities Regulatory Commission and Securities and Futures Commission (SFC) will allow Mainland China and Hong Kong funds that meet the eligibility requirements to follow streamlined procedures to obtain authorisation or approval for offering to retail investors in each other’s market.
Bond Connect is an initiative launched in 2017 for mutual bond market access between Hong Kong and Mainland China, under which eligible foreign investors are able to invest in bonds circulated in the China Interbank Bond Market through the northbound trading of Bond Connect. So far, the southbound scheme has not been implemented, and the Hong Kong Government is planning to expand the Bond Connect scheme to cover both southbound and northbound trading, with the target of launching it within 2021.
WMC (Wealth Management Connect)
This pilot programme was announced in June 2020, aiming to facilitate the cross-border investment by individual residents in the Guangdong-Hong Kong-Macao Greater Bay Area. Cross-border fund flows under the WMC will be subject to quota management and will be conducted and managed in a closed-loop. Due to the Covid-19 closed border situation, the formal launch date and implementation details (such as the product eligibility) of the WMC are not yet released. WMC represents a new and flexible channel for Hong Kong fund managers to tap into the opportunities presented by the Mainland China market. Fund managers have started to review their existing products or plan for new fund launches to take advantage of the scheme, while bank distributors have been working on the standard terms for offering products to investors.
Deacons’ experience in the above cross-border programmes has included advising Hong Kong and internal asset managers on relevant issues, setting up funds and other products utilising such programmes, and preparing and reviewing relevant agreements. Our outbound work has included advising a large number of Mainland China fund management companies and securities companies on setting up SFC licensed subsidiaries in Hong Kong, and providing funds and products set-up services and ongoing compliance advice.
Our experienced team, leveraging over 20 years of experience and know-how, can assist you with the complex process of obtaining approvals, establishing funds and reviewing agreements. Most members of our team are Mandarin-speaking legal advisors which makes us a particularly attractive choice for sophisticated investors.