What is QFII in China?
QFII stands for qualified foreign institutional investors. In 2003, China permitted qualified foreign institutional investors (QFII) to invest in listed domestic securities denominated in local currency, subject to a quota approved by The State Administration of Foreign Exchange (SAFE), China’s foreign exchange controller.
Pursuant to “Regulation on Domestic Securities Investment by Qualified Foreign Institutional Investor”, to qualify as a QFII, the candidate must:
- have stable finance, good credibility and meet the minimum assets requirements set by China Securities Regulatory Commission (CSRC).
- meet the requirements set by the authority in its own country or area on the number of staffs.
- have a healthy governing structure and a complete internal control system, and received no significant punishments in the last 3 years.
- have a complete legal and supervision system in the candidate’s home country which has signed a Memorandum of Understanding (MOU) with CSRC, and maintained effective supervision and control.
- meet other requirements set by CSRC based on prudence.
QFIIs are in the form of pension funds, insurance funds, mutual funds, charity funds, donation funds, and government or monetary authorities. ‘Open-ended China Funds’, that is open-ended securities investment funds established overseas by a QFII through public issue, where at least 70 per cent of the assets of the fund are to be invested in China, is also approved. Separate accounts may be permitted to be opened by a QFII for its own funds and for funds under its management. If a QFII establishes more than one Open-ended China Fund, different accounts are to be established for each.
The minimum investment quota by an individual QFII is US$50 million. In October, 2009, the maximum limit on the quota applicable to a single QFII was increased from US$800 million to US$1 billion. By regulation, a QFII must appoint a domestic commercial bank as the custodian of its assets and instruct a domestic securities company to manage its domestic securities trading activities.
There is, however, a lock-up period of 3 months to 1 year, depending on the type of QFII, during which the principal amount invested is restricted from being repatriated outside of China. The lock-up period for pension funds, insurance funds, mutual funds, charity funds, donation funds, government or monetary authorities and Open-ended China Funds is three months, starting from the date of remittance of the full amount of the principal. The lock-up period for other types of QFII is one year.
After the lock-up period, Open-ended China Funds have greater flexibility than other QFIIs with respect to remittances into and out of China. Remittances by Open-ended China Funds may be made by the relevant custodians without SAFE’s prior approval, if the amount is not more than US$50 million. The custodian is required to make a filing with SAFE afterwards.
When investing in domestic securities through QFII, an individual overseas investor is not allowed to hold more than 10% of the total shares in any listed company; and the aggregate of A-shares in a single listed company held by overseas investors must not exceed 20% of the total number of shares in the listed company. Similarly, A-shares in a single listed company held by an individual QFII cannot exceed 10% of the total shares in the listed company; and the total A-shares in the same listed company held by all QFIIs must not exceed 20% of the total shares in the listed company.
By early February, 2012, there were 140 QFII members including Goldman Sachs, Barclays Bank, BNP Paribas, Manulife, Nomura Securities, Templeton, Lloyd George, Bank Negara Malaysia, Credit Suisse, UOB, Abu Dhabi, Samsung Investment, Sumitomo Mitsui, GE Asset Management, Stanford University, Yale University, Morgan Stanley, DBS Bank, Temasek Fullerton Alpha, Government of Singapore, Hongkong & Shanghai Bank and UBS AG.
Foreign investors who are not QFII members can therefore indirectly invest in A-Shares or B-shares via QFII.
Please click on the following link to view the full list of QFII members:
China Official Could Ease Restrictions To Draw More QFIIs
China Boosts QFII Investment Quota By US$50 Billion
What are “A Share”, “B Share”, “H Share” & “Red Chip”
China Stocks B-Share in Details
Hong Kong Stock Through Train Program
China Approves QFII License For OFI Asset Management
List of China QDII Funds, April, 2011
Updated May, 2012
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