The Qualified Foreign Institutional Investor (QFII) scheme was introduced by the People’s Republic of China (PRC) in 2002 for inbound investments by foreigners. The scheme allows foreign investments to be made directly in PRC A-shares and listed bonds. The QFII quota ceiling was initially set at US$4 billion but was raised to US$30 billion over the following five years. As at the end of January 2012, 142 financial institutions had obtained QFII approvals, 27 of which were granted in the last six months. Foreign investors eligible to apply for a QFII quota include foreign fund management institutions, commercial banks, securities companies, insurance companies, sovereign funds, pension funds, endowment funds, charitable funds and trust companies.
The eagerly anticipated pilot measures for the Renminbi Qualified Foreign Institutional Investor (RQFII) scheme were issued in December 2011. The scheme allows PRC fund management companies and securities companies to apply indirectly, via their Hong Kong subsidiaries, for RQFII licences and quotas to invest Renminbi raised in Hong Kong into the domestic PRC securities market. One eligibility requirement for an RQFII licence is that the Hong Kong subsidiary holds a Type 9 (asset management) licence from Hong Kong’s Securities and Futures Commission (SFC). Deacons’ financial services practice assisted numerous clients in preparing for the introduction of the RQFII scheme. Deacons’ team, led by partners Taylor Hui and Alwyn Li, obtained the SFC’s approval for retail sale of two RQFII funds in the first round of authorisations granted on 30 December 2011. The team has subsequently gained SFC approval of RQFII products for ten other clients, representing about 70% of the market. Separately, Deacons has acted for all five offshore RMB bond funds authorised by the SFC.
The RQFII scheme broadens the investment channels for Renminbi raised in Hong Kong and is seen as a further step in the internationalisation of the Renminbi. At a briefing session held by PRC securities and banking regulators in January 2012, it was suggested that the RQFII scheme may be expanded to cover Hong Kong subsidiaries of PRC insurance companies, banks, and even foreign entities.
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