2012.12.28 WEI, Yingling、ZHAO, Kun
On December 7, 2012, the State Administration of Foreign Exchange (“SAFE”) issued the Announcement [2012] No. 2 to promulgate the amended Provisions on Foreign Exchange Administration of Securities Investment by Qualified Foreign Institutional Investors which took effect on September 29, 2009 (“New Regulation”).
This amendment is part of the efforts to further open the Chinese capital markets and attract more long-term foreign investment. Before this amendment, CSRC, another regulator of QFIIs has promulgated the Regulation Regarding Relevant Issues in the Implementation of the Administrative Measures on Securities Investment by QFIIs on July 27, 2012.
Primary changes in the New Regulation are as follows:
1. Relaxing Investment Quota Limit of Certain QFIIs
Normally the aggregate investment quota of a single QFII shall be no more than the equivalent of USD1 billion, while the upper limit of the investment quotas for sovereign wealth funds, central banks and monetary authorities may exceed the equivalent of USD 1 billion.
2. Changing the Administration System on QFII’s RMB Account
In the New Regulation, the mechanism on QFII’s foreign exchange accounts remains the same. Namely, a QFII can open one separate foreign exchange capital account for each of the three types of funds i.e, QFII’s own capital, the capital of QFII’s clients that it manages and open-ended Chinese fund). However, the regulations on QFII’s RMB accounts will be changed as bellow:
QFII shall open special RMB saving accounts and the account names shall include QFII’s name and reflect the nature of the capital (QFII’s own capital/the capital of QFII’s clients or name of clients/ name of open-ended Chinese fund) as well.
The QFII’s RMB saving accounts are divided into two types, one is for QFII’s investment in domestic securities market and the other for the investment in stock index futures. The two types of RMB saving accounts and the special RMB account opened by QFII before the issuance of New Regulation shall be collectively referred to as RMB Account.
The New Regulation deletes the requirement that one RMB Account shall correspond to one foreign currency account. The New Regulation further provides that a QFII may apply to open no more than six RMB saving accounts for its clients’ funds, provided that the initial amount in each RMB saving account shall be no less than the equivalent of USD 20 million. Furthermore, such RMB saving accounts shall correspond to one foreign exchange account which QFII opens for the funds of its clients.
Funds transfer among multiple RMB saving accounts opened by QFII for its clients' funds is prohibited.
Where a QFII has opened a special RMB account for its clients’ funds before the New Regulation, if the QFII needs to open multiple RMB saving accounts to manage the funds separately, it shall apply to SAFE within six months after the issuance of the New Regulation and shall transfer the funds in the special RMB account to the new RMB saving accounts within three months after the application is approved.
Where a QFII has opened a special RMB account, if the QFII needs to open RMB saving accounts or change the original special RMB account, it shall cancel the special RMB account first and then open basic saving account and dedicated saving account.
3. New Requirement on QFII’s Remittance of Funds
According to the New Regulation, QFII shall be subject to certain restrictions on repatriation of funds out of China. We understand that the restrictions aim to avoid the adverse impact on China’s foreign currency system by restricting QFIIs from massive exit of China in the same time. Primary amendments include:
After the expiry of the lock-up period, the amount of monthly repatriation of funds (including principal and profits) remitted abroad by a QFII shall not exceed 20% of its total assets in China as at the end of the last year.
An open-ended Chinese fund may make remittance abroad on a weekly basis rather than a monthly basis as under the 2009 regulation.
The net cumulative amount of funds remitted abroad by an open-ended Chinese fund on a monthly basis shall not exceed 20% of the total assets in China of the said fund as at the end of the last year.
4. Simplifying Procedures on QFII’s Remittance of Fund Abroad
If an open-ended Chinese fund intends to remit funds abroad, its custodian bank may directly handle relevant procedures on a weekly basis. No filing or approval from SAFE is required as before.
Where a QFII other than an open-end Chinese fund needs to remit abroad the cumulative investment proceeds already realized, its custodian bank may handle the remittance based on the QFII’s written application or instruction, and no approval from SAFE is required any more.
5. Shortening Period for Custodian to Submit Statements on QFII
Within five rather than eight working days as previously required after the end of each month, the custodian shall submit Monthly Forms on Domestic Securities Investment by QFIIs to SAFE.
