China has launched a pilot program under the “Measures on the Pilot Program for Asset Management and Securities Companies to Qualify as RMB Qualified Foreign Institutional Investors” that allows Chinese yuan raised in Hong Kong by Hong Kong subsidiaries of Chinese domestic fund management companies and securities companies to be invested in China’s domestic securities markets. This pilot program was announced jointly by the Chinese Securities Regulatory Commission (“CSRC”), the People’s Bank of China (“PBOC”), and the State Administration of Foreign Exchange (“SAFE”) on Dec. 16, 2011, and became effective on the same date. Under the pilot program, the initial investment quota is RMB 20 billion (USD 3.1 billion), 80 percent of which is required to be invested in fixed-income securities, leaving 20 percent available for the equity markets.
This program represents another step for China to achieve its long-term goal to increase the attractiveness of the yuan as an international currency. It comes at a time when foreign exchange is reportedly flowing out of mainland China, and it may help to offset recent capital outflows and to ease tightening liquidity in mainland stock markets. While the program’s effect is expected to be limited given the small size of the new quota, it represents yet another move to liberalize China’s restricted capital markets.
Under the guidelines, an applicant needs to meet the following qualifications for approval as an RMB Qualified Foreign Institutional Investor (“RQFII”):
1) The applicant shall have been approved by the Hong Kong Securities and Futures Commission to conduct an asset management business and shall maintain its asset management business in sound financial and credit status;
2) The applicant shall have an effective corporate governance structure and internal control system, and its employees shall satisfy the requirements of licensed individuals in Hong Kong;
3) The applicant and its parent company in mainland China shall conduct business in accordance with the relevant regulations and shall not have been assessed of any substantial penalties by its local regulators over the three years prior to application;
4) The applicant’s parent company in mainland China shall have the qualification to conduct a securities asset management business; and
5) The applicant shall satisfy other criteria‚ as stipulated by the CSRC‚ based on prudent regulatory principles.
The applicant must first apply to the CSRC for a Securities Investment License. The CSRC will, within 60 days from the date when the full set of application documents is received, determine whether to grant approval. After obtaining a Securities Investment License, the applicant must apply to SAFE for an investment quota. SAFE shall, within 60 days from the date when the full set of application documents is received, determine whether to grant the requested quota.
The RQFII qualification requirements are similar to those under the QFII rules effective in 2006. RQFII’s decision-making period of 60 days is more than twice as long as QFII’s 20 working days for both Securities Investment Licenses and investment quotas.
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作者：Brian D. Beglin, Xiaowei Ye, Ruoke Liu