China Announces Removal of QFII and RQFII Investment Quota Limitations

On September 10, 2019, the State Administration of Foreign Exchange (SAFE) held a press conference in which it announced that it would be removing the investment quota limitations on two inbound investment schemes – the Qualified Foreign Institutional Investor (QFII) program and the Renminbi Qualified Foreign Institutional Investor (RQFII) program.

The QFII and RQFII programs were established in 2002 and 2011, respectively, to allow access to Chinese securities using either Renminbi (RMB) or a foreign currency. The QFII program has allowed QFIIs to invest in companies that are publicly listed on the onshore stock and bond markets in mainland China and traded in RMB. The RQFII program is a modified version of the QFII program, as it allows foreign investment in the mainland market via offshore RMB accounts. Since the establishment of the two programs, over 400 institutional investors from 31 countries have used these channels to invest in China's financial markets.

In an effort to open up China's financial markets, the QFII program had undergone several developments in recent years, including the removal of relevant lock-up periods; allowing foreign exchange hedging of securities held by QFIIs in China; and doubling the total quota from USD150 million to USD300 million. Earlier this year, the China Securities Regulatory Commission (CSRC) issued a consultation on draft regulations that would consolidate the QFII and RQFII programs, which would lower thresholds for overseas applicants and provide a wider scope of permitted investments.1

In SAFE's press conference, it was announced that the relevant regulations2 will be soon revised. It is envisaged that, in the future, foreign investors that have obtained the relevant qualifications approved by the CSRC will only need to go through a registration process. Domestic custodian banks will be able to assist foreign investors with such registration in order to obtain a registration certificate issued by SAFE. Post-registration, investors will be able to open special fund accounts with the domestic custodian banks to handle the follow-up remittance of funds and exchange business.

Additionally, the RQFII program was originally available only to financial institutions in 19 countries and regions. Following the announced reforms, the jurisdictional limit on the RQFII program also will be lifted and will be available to qualified foreign institutions worldwide.

Footnotes

_{1) For further information regarding the proposed consolidated regime, please refer to Dechert OnPoint, China Proposes Merger of QFII and RQFII Programs.
2) The Regulations on Foreign Exchange Administration of Domestic Securities Investment by Qualified Foreign Institutional Investors (SAFE Announcement No.1 of 2018) 《合格境外机构投资者境内证券投资外汇管理规定》（国家外汇管理局公告 2018年第1号）.}