On 10 September 2019, the China’s State Administration of Foreign Exchange (SAFE) announced the abolition of the investment quota system under the qualified foreign institutional investor (QFII) and renminbi qualified foreign institutional investor (RQFII) schemes pending formal approval by the State Council of the PRC. The announcement is available here in Chinese.
The QFII and RQFII schemes were launched in 2002 and 2011 respectively. They serve as the main conduits for global investors to access China’s financial markets. According to SAFE’s announcement, the abolition of the quota system is a reform measure – part of the PRC’s policy of opening up its financial markets and to satisfy foreign investors’ demand for the same. However, QFII and RQFII licences will remain and foreign investors will still need to apply for eligibility from the China Securities Regulatory Commission (CSRC). Under the latest amendments, QFII and RQFII licence holders will be required to directly engage a PRC custodian bank to open a special fund account, and handle the follow-up remittance of funds and relevant business with the custodian bank. The custodian bank must carry a registration certificate issued by SAFE. In other words, SAFE will no longer approve and file investment quotas for eligible investors under the QFII and RQFII schemes. The restrictions on countries and regions as RQFII pilots, which currently include Hong Kong and some other 19 jurisdictions, will also be removed. As a result, qualified institutions from all over the world will be able to invest in relevant permissible financial products using offshore renminbi.
In due course, disclosures in the offering documents of funds with investments in Mainland China through the QFII and RQFII regimes will need to be reviewed and updated in accordance with the revised set of QFII/RQFII rules. According to the announcement’s Q&A (available here in Chinese), SAFE will soon amend the prevailing rules on QFII and RQFII schemes, but there is no indication of any specific timeframe for publication.
Earlier this year, the CSRC issued a consultation paper on new QFII/RQFII rules. While the new rules are yet to be officially released, the CSRC’s 2019 legislative plan indicates that it may attempt to publish the consultation conclusion before the end of 2019. We recommend fund managers should keep abreast of developments.