LawFlash

China Adopts Final Rule to Ease Regulation on QFIIs

August 17, 2012
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On July 27, 2012, the China Securities Regulatory Commission (the “CSRC”), aiming to attract more investments by qualified foreign institutional investors (“QFIIs”), published a Regulation Regarding Certain Issues in the Implementation of the Administrative Measures on Onshore Securities Investment by Qualified Foreign Institutional Investors (the “New Regulation”). This alert outlines the notable changes reflected in the New Regulation as compared to the regulation it supersedes — the Notice of the China Securities Regulatory Commission on the Implementation of the Measures for the Administration of Onshore Securities Investment by Qualified Foreign Institutional Investors (the “CSRC Notice”).

Prior to launching the New Regulation, the CSRC issued a draft version on June 20, 2012 (the “Draft Regulation”). The New Regulation reflects certain comments received by the CSRC from the public during the past several weeks. This alert also summarizes major differences between the Draft Regulation and the New Regulation.

1. Background

Since its launch in November 2002, the QFII program has undergone successive expansions, the most notable of which was the enlargement of investment quotas from US$30 billion to US$80 billion announced this past April. However, some of the regulations relating to the QFII program, notably the Administrative Measures on Onshore Securities Investment by Qualified Foreign Institutional Investors and the CSRC Notice because of their high thresholds for market entry, have been viewed as not encouraging further opening up of the capital markets and attracting more offshore medium and long-term capital. The New Regulation published by the CSRC intends to address this situation by relaxing the market entry criteria and the operational constraints, expanding the scope of permitted investment, and simplifying and facilitating the administrative processes.

2. Prominent Changes

(i) QFII Eligible Institutions Expanded

In the CSRC Notice, foreign institutions eligible for the QFII program were limited to fund management institutions, insurance companies, securities companies, commercial banks and other institutional investors (such as pension funds, charitable foundations, endowments, trust companies, sovereign wealth funds, etc.). The New Regulation has expanded the scope of eligible institutions by replacing “fund management institutions” in the CSRC Notice with the term “asset management institutions”. According to reports1 on the CSRC’s website quoting a responsible CSRC official, private equity investment firms now can apply for QFII licenses under the “asset management institutions” category. As the term “asset management institution” is not a defined legal term in China, the CSRC has ample discretion to decide which institutions will be deemed “asset management institutions”.2

(ii) QFII Market Entry Criteria Lowered

Consistent with the Draft Regulation, the New Regulation substantially lowers the market entry criteria as shown in the chart below.

Current Criteria New Regulation
Asset Management Institutions
  • Fund Management Institutions
  • Asset Management Experience: >5 years
  • Securities under management: >US$5 billion
  • Asset Management Institutions
  • Asset Management Experience: >2 years
  • Securities under management: >US$500 million
Insurance companies
  • History: >5 years
  • Securities held: >US$5 billion
  • History: >2 years
  • Securities held: >US$500 million
Securities companies
  • Securities Business Experience: >30 years
  • Paid in capital: >US$1 billion
  • Securities under management: >US$10 billion
  • Securities Business Experience: >5 years
  • Net assets: >US$500 million
  • Securities under management: >US$5 billion
Commercial banks
  • Ranking by total assets: Within global top 100
  • Securities under management: >US$10 billion
  • Banking business experience: >10 years
  • Tier 1 capital3: >US$300 million
  • Securities under management: >US$5 billion
Other institutional investors (such as pension funds, charitable foundations, endowments, trust companies, sovereign wealth funds, etc.)
  • History: >5 years
  • Securities held or under management: >US$5 billion
  • History: >2 years
  • Securities held or under management: >US$500 million

(iii) New Products Eligible to QFIIs

According to the New Regulation, the products eligible for investment by QFIIs have been substantially expanded and now include:

  • Stocks, bonds and warrants traded or transferred on Shanghai and Shenzhen Securities Exchanges (the “Stock Exchanges”);
  • Fixed income products traded in the Inter-bank Bond Market (the “IBBM”);
  • Securities investment funds;
  • Stock index futures; and
  • Other financial instruments approved by the CSRC.

The New Regulation allows QFIIs for the first time to invest in fixed income products traded in the IBBM. The types of fixed income products traded in the IBBM may include (i) bond products, such as central government and local government bonds, central bank bonds, policy-oriented and ordinary financial bonds, subordinated bonds, mixed capital bonds, and RMB-denominated bonds issued by international development agencies (such as the World Bank, Asian Development Bank etc.) and (ii) asset-backed securities (“ABS”) products.4 The New Regulation permits QFIIs to participate in the IBBM in addition to current players such as PRC commercial banks, PRC non-banking financial institutions, other Chinese institutional investors as well as approved foreign institutional investors (e.g., Chinese branches of foreign banks, foreign central banks or monetary authorities, and foreign banks participating in RMB settlement for cross-border trade). Opening the IBBM to QFIIs may not only enable QFIIs to improve their performance and attract more foreign capital by diversifying their investments, but may also indirectly stimulate the IBBM.

However, quite a few issues related to QFII investments in the IBBM remain to be further clarified by authorities other than the CSRC. For example, the People’s Bank of China or the China Banking Regulatory Commission may need to address the following questions:

  • How will such investments be conducted by QFIIs?
  • Should QFIIs (or their custodians) engage one or more settlement agents to trade and settle deals?
  • How will QFIIs (or their custodians) open accounts with the China Government Securities Depository Trust & Clearing Co., Ltd.?

Similarly, the tax authorities may need to clarify whether or how QFIIs can enjoy current preferential treatment applicable to certain fixed income products traded in the IBBM. For example, interest accrued on local government bonds issued from 2009 through 2011 is exempt from income tax, and income tax is assessed on interest accrued on the Railway Construction Bonds issued from 2011 through 2013 at half the otherwise applicable tax rate. It is therefore expected that some of the current applicable rules may require amendments, or new rules may need to be enacted to govern how QFIIs can participate in the IBBM.

The New Regulation has also expanded the “products traded on the Stock Exchanges” to “products traded and transferred on the Stock Exchanges.” This expansion aims to include privately placed small and medium enterprise bonds that are issued and transferred (rather than traded) on the Stock Exchanges.

(iv) Shareholding Ceiling Raised

Like the Draft Regulation, the New Regulation raises the ceiling for aggregate shareholdings of all foreign investors in the “A” shares of a listed Chinese company from the current 20 percent to 30 percent. The ceiling for the shareholding of a single foreign investor in the total share capital of a listed Chinese company remains at 10 percent.5

(v) Securities Accounts6

The Draft Regulation sought to remove the ambiguity surrounding ownership of assets held by a QFII for itself and its clients. The Draft Regulation expressly required a QFII to open separate segregated securities accounts for its own capital and its clients’ capital and further clarified that assets in accounts opened for QFII clients would belong to the QFII clients and would not be the property of the QFII or its custodian.

These positive efforts have been partiality cut back by the New Regulation, which has restored certain provisions of the CSRC Notice. Under the New Regulation, (i) a QFII is legally required to open separate segregated securities accounts for its own capital and its clients’ capital, and (ii) assets in segregated accounts opened for a QFII’s long-term investment clients (such as a publicly placed fund, insurance fund, pension fund, charity foundation, endowment fund and sovereign investment fund (collectively, “Long-Term Clients”)) belong to the Long-Term Clients and are not the property of the QFII or its custodian, but (iii) the ownership of assets in segregated accounts opened for a QFII client other than a Long-Term Client remains unclear. It remains to be determined whether the lack of clarity regarding ownership of assets in accounts opened for QFII clients other than Long-Term Clients was intentional or not.

As in the Draft Regulation, the New Regulation allows Chinese fund management companies to provide ad-hoc asset management services7 for QFIIs and to open corresponding accounts to facilitate QFII operations.

(vi) Engagement of Multiple Securities Companies by QFIIs

QFIIs have been theoretically allowed to engage up to three securities companies to trade securities in each of the Stock Exchanges. In practice, however, a QFII could only engage one security company in each Stock Exchange because (1) each QFII is only allowed to open one special RMB account and (2) the CSRC Notice required a one-to-one correspondence of the securities account with the special RMB account. The New Regulation abandons this one-to-one correspondence, thereby effectively permitting QFIIs to engage multiple securities companies.

(vii) Less Onerous Application Requirements and Electronic Filing

The New Regulation reduces the burden of applying for a QFII license because (1) it no longer requires an applicant to submit its articles of association; (2) it now only requires the submission of a power of attorney issued by the applicant to its custody bank, instead of a draft custody agreement; (3) it now requires an applicant to submit audited financial statements for the most recent one-year period instead of the past three years; and (4) the explanation by the applicant regarding whether it has been subject to any severe penalty by regulatory authorities must now be made for the latest three years or, if shorter, the period since its establishment.

To further simplify and add transparency to the application and administration processes, the New Regulation expressly recognizes an electronic filing of a QFII application through the CSRC website and requires the reporting of major events to be made by electronic filing.

3. Summary

The New Regulation has responded to many of the suggestions and comments made by industry players and should help to further attract and facilitate investments of foreign capital through QFIIs.

In the past, the relevant regulators, CSRC and State Administration of Foreign Exchange, have worked in close coordination with respect to legislation and rules governing QFIIs. According to media reports quoting an official of CSRC,8 CSRC will actively coordinate with relevant authorities to study relevant measures to address the foreign exchange and tax implications brought about by the New Regulation.

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This alert is not a legal advice but just a general overview.


中国颁布规定放松对合格境外机构投资者的管制

2012年8月17日

为了吸引更多合格境外机构投资者(以下简称“QFII”)的投资,中国证券监督管理委员会(以下简称“中国证监会”)于2012年7月27日发布了《关于实施<合格境外机构投资者境内证券投资管理办法>有关问题的规定》(以下简称“《规定》”),而《关于实施〈合格境外机构投资者境内证券投资管理办法〉有关问题的通知》(以下简称“《通知》”)同时废止。本文概述了《规定》与《通知》相比值得注意的变化。

在《规定》公布之前,中国证监会于2012年6月20日发布了《规定》草案(“《规定》草案”)。此次《规定》也反映了中国证监会在《规定》草案向社会公开征求意见期间收到的一些反馈意见。本文亦总结了《规定》与《规定》草案相比的主要变化。

一、修改背景

自2002年11月中国开始QFII试点以来,QFII规模历经数次扩容,其中最引人注目的是今年4月QFII投资额度由300亿美元增加至800亿美元。但是,由于一些QFII法规,特别是《合格境外机构投资者境内证券投资管理办法》以及《通知》,规定了较高的市场准入标准,因此被认为不利于鼓励进一步开放资本市场、吸引更多的境外中、长期资本。中国证监会发布这一《规定》,旨在放宽QFII市场准入标准和运作限制、扩大QFII投资范围、简化QFII运作程序和增加管理便利,以适应新的形势的变化。

二、显著的变化

1、扩大符合QFII申请资格的机构的范围 

《通知》规定,符合QFII申请资格的境外机构限于基金管理机构、保险公司、证券公司、商业银行和其他机构投资者(例如养老基金、慈善基金会、捐赠基金、信托公司、政府投资管理公司等)。而《规定》使用了“资产管理机构”一词,以之取代《通知》内的“基金管理机构”,从而扩大了合格机构的范围。根据中国证监会网站所载其有关部门负责人的说明1,私募股权投资机构现在可作为“资产管理机构”申请QFII资格。在中国,由于“资产管理机构”在法律上没有定义,中国证监会有充分的自由裁量权决定哪些机构将被视为属于“资产管理机构”2

2、降低QFII市场准入标准

与《规定》草案一致,《规定》大幅度降低了QFII市场准入标准,具体如下:

现行标准 《规定》下的标准
资产管理机构
  • 基金管理机构 
  • 经营资产管理业务5年以上 
  • 管理的证券资产不少于50亿美元 
  • 资产管理机构 
  • 经营资产管理业务2年以上 
  • 管理的证券资产不少于5亿美元 
保险公司
  • 成立5年以上 
  • 持有的证券资产不少于50亿美元 
  • 成立2年以上 
  • 持有的证券资产不少于5亿美元 
证券公司
  • 经营证券业务30年以上 
  • 实收资本不少于10亿美元 
  • 管理的证券资产不少于100亿美元 
  • 经营证券业务5年以上 
  • 净资产不少于5亿美元 
  • 管理的证券资产不少于50亿美元 
商业银行
  • 总资产世界排名前100名以内 
  • 管理的证券资产不少于100亿美元 
  • 经营银行业务10年以上 
  • 一级资本3不少于3亿美元 
  • 管理的证券资产不少于50亿美元 
其他机构投资者(养老基金、慈善基金会、捐赠基金、信托公司、政府投资管理公司等)
  • 成立5年以上 
  • 管理或持有的证券资产不少于50亿美元 
  • 成立2年以上 
  • 管理或持有的证券资产不少于5亿美元 

3、QFII可投资的新产品

《规定》大幅扩大了QFII的投资范围,QFII现在可以投资于以下产品:

  • 在上海和深圳证券交易所(以下简称“证券交易所”)交易或转让的股票、债券和权证;
  • 在银行间债券市场交易的固定收益产品;
  • 证券投资基金;
  • 股指期货;及
  • 中国证监会允许的其他金融工具。

《规定》首次允许QFII投资于在银行间债券市场交易的固定收益产品。在银行间债券市场交易的固定收益产品可以包括(1)债券产品,例如中央政府和地方政府债券、中央银行债券、政策性和普通金融债券、次级债券、混合资本债券以及国际开发机构(例如世界银行、亚洲开发银行等)发行的人民币债券;(2)资产支持证券化产品4

目前,银行间债券市场的市场主体包括中国境内商业银行、中国境内非银行金融机构、中国其他机构投资者以及批准的外国机构投资者(例如外国银行在华分行、外国中央银行或货币当局以及跨境贸易人民币结算境外参加银行等)。《规定》允许QFII作为新的市场主体参与银行间债券市场。向QFII开放银行间债券市场一方面不仅可以提升QFII的投资表现,而且可以通过提供多样化的投资标的吸引更多境外资本,另一方面也可以间接刺激银行间债券市场的发展。

但是,与QFII投资银行间债券市场相关的诸多问题仍然有待中国证监会之外的监管机关进一步澄清。例如,中国人民银行或中国银行监督管理委员会可能需要解决以下问题:

  • QFII如何投资银行间债券市场?
  • QFII(或其托管人)是否应委托一家或多家结算代理机构进行交易及结算?
  • QFII(或其托管人)如何在中央国债登记结算有限责任公司开立账户?

同样,税务机关可能需要澄清,QFII是否能够享受或如何享受在银行间债券市场交易的固定收益产品现行所适用的优惠待遇。例如,对2009年到2011年间发行的地方政府债券所产生的利息免征所得税,对2011年到2013年间发行的铁路建设债券所产生的利息减半征收所得税。因此,我们预期某些现行规章可能需要修订,或者可能需要制定新的规章,对QFII参与银行间债券市场进行规范。

《规定》还将“证券交易所交易的产品”扩大为“证券交易所交易或转让的产品”,其目的在于使QFII可投资于在证券交易所发行和转让(并非交易)的中小企业私募债。

4、提高持股比例上限

与《规定》草案一样,《规定》将所有境外投资者对单个上市中国公司A股的持股比例总和的限制由现在的20%提高到30%。单个境外投资者持股比例仍然不得超过该中国上市公司股份总数的10%5

5、证券账户6

《规定》草案试图解决QFII自有资产和其客户资产所有权不清的问题。《规定》草案明确要求QFII应当为自有资金和管理的客户资金分别开立分离的证券账户,并进一步澄清,QFII为其客户开立的账户里的资产属于QFII的客户所有,并不属于QFII或其托管人。

《规定》恢复了《通知》里的若干条款,因此部分削弱了《规定》草案在这方面作出的积极努力。根据《规定》,(1)QFII应当为自有资金和管理的客户资金分别开立分离的证券账户;并且(2)QFII为公募基金、保险资金、养老基金、慈善基金、捐赠基金、政府投资资金等长期资金客户(合称“长期资金客户”)开立证券帐户时,账户资产属于该长期资金客户,并不属于QFII和其托管人;但是(3)对于QFII为非长期资金客户开立的分离证券帐户里的资产所有权问题,目前还无定论。目前,仍不确定中国证监会是否有意未对非长期资金客户证券帐户里的资产的所有权问题作出明确规定。

与《规定》草案一样,《规定》也允许中国基金管理公司为QFII提供特定客户资产管理服务7,并开立相应账户以便QFII运作。

6、QFII可委托多家证券公司

《规定》公布之前,QFII理论上可分别在上海、深圳证券交易所委托3家证券公司。但实践中,QFII只能分别在1家证券交易所委托1家证券公司,这是因为(1)每个QFII只被允许开立一个人民币特殊账户;(2)《通知》要求证券账户应与人民币特殊账户一一对应。《规定》删除了一一对应的规定,从而实际上允许QFII委托多家证券公司。

7、申请条件简化,电子提交程序

《规定》减轻了QFII资格申请的负担。根据《规定》,申请者(1)无需提交公司章程;(2)现在仅需提交对托管银行的授权委托书,无需提交托管协议草稿;(3)需提交最近1年而不是最近3年经审计的财务报表;以及(4)说明最近3年或者自成立起是否受到监管机构重大处罚。

为了进一步简化申请和运作程序并增加其透明度,《规定》明确了QFII资格申请通过中国证监会网站电子提交的方式。重大事项的报告需通过中国证监会网站以电子报送方式进行备案。

三、总结

《规定》回应了许多业内人士提出的建议和意见,应当能够有助于通过QFII进一步吸引、促进境外资本的投资。

中国证监会和国家外汇管理局作为QFII监管机关在过去的QFII立法方面都配合十分紧密。根据中国证监会网站上所载有关部门负责人的说明8,中国证监会将积极协调相关部门研究《规定》所带来的有关QFII外汇管理和税收问题的对策。

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本文只是对所述法律的概述,不构成法律意见。

作者:叶小玮Brian D. Beglin王瑾刘若珂

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Ye-Xiaowei
Beglin-Brian
Joseph-Roger

1 http://www.csrc.gov.cn/pub/newsite/bgt/xwdd/201207/t20120727_213209.htm.

2 Although the replacement of “fund management institutions” by “asset management institutions” had already been made in the Draft Regulation, the CSRC’s position on this issue appears to have changed during recent weeks. When the Draft Regulation was issued in June 2012, the CSRC’s official explanation of the Draft Regulation limited eligible institutions under the “asset management” category to “fund management institutions.” As noted previously, however, the CSRC position reflected on the CSRC website is that private equity firms are also included among eligible asset management institutions.

On the other hand, we believe that this change is not likely to affect whether hedge funds will be allowed to participate in the QFII program, as the CSRC website report (see endnote 1) continues to emphasize that China encourages long-term capital to participate in the QFII program and in the past hedge funds have been deemed by the Chinese authorities to be short-term capital.

3 Under the Measures for the Administration of the Capital of Commercial Banks (For Trial Implementation) issued on June 7, 2012, and to be effective as of Jan 1, 2013, “tier 1 capital” is defined as the sum (subject to certain adjustments) of the following items:

  1. Eligible paid-up capital or ordinary shares;
  2. Capital reserve;
  3. Surplus reserve;
  4. General risk reserve;
  5. Undistributed profits;
  6. The portion of minority shareholders’ capital that may be included; and
  7. Other Tier 1 capital instruments and their premiums.

Such measures apply to banks incorporated in China. It is unclear whether Tier 1 capital of foreign commercial banks will be calculated based on the above calculation method.

4 Under the Draft Regulation, QFIIs were allowed to invest only in bond products traded in the IBBM. We presume that the expansion under the New Regulation to include ABS is primarily intended to support the recently announced third pilot program for credit ABS and another program for asset backed notes under the Guideline Regarding Asset Backed Notes of Non-financial Institutions in the National Inter-Bank Bond Market published by the National Association of Financial Market Institutional Investors on Aug. 3, 2012.

5 Neither the 30 percent ceiling nor the 10 percent ceiling applies to strategic investments made according to the Administrative Measures for Foreign Investors’ Strategic Investment in Listed Companies.

6 We note that securities regulators in the United States interpret the reach of their own jurisdiction broadly, including in connection with “broker-dealer” and “investment adviser” activities. In particular, the US Securities and Exchange Commission takes the position that it has jurisdiction over non-US securities firms when the firms solicit and effect transactions in debt and equity securities (including non-US securities and non-dollar denominated securities) with any US investors, or seek to provide investment advisory services to US investors, including institutional investors such as QFIIs. Therefore, to the extent that a QFII is a US institution, Chinese securities firms, custodial banks and fund management institutions, should consult with experts in U.S. securities regulation to ensure that accounts for QFIIs are solicited and established in a manner that complies with US regulatory requirements.

7 Subject to relevant restrictions on investment scope set forth in QFII related regulations, such services shall be conducted according to the Trial Measures for Fund Management Companies to Provide Asset Management Services for Specific Clients.

8 See endnote 1.


1 http://www.csrc.gov.cn/pub/newsite/bgt/xwdd/201207/t20120727_213209.htm

2 尽管《规定》草案中已经使用“资产管理机构”取代“基金管理机构”,中国证监会在这一问题上的立场在最近几周内似乎有所变化。6月份,中国证监会发布《规定》草案的起草说明时,将可以作为“资产管理机构”申请QFII资格的机构局限于“基金管理机构”。而如前所述,中国证监会公布《规定》时,在其网站上表示,私募股权投资公司可作为资产管理机构申请QFII资格。

另一方面,我们相信,中国证监会这一立场的变化不大可能改变对冲基金是否能申请QFII资格的现状。中国证监会在其网站上表示(参见尾注1)继续强调中国鼓励长期资本参与QFII,而在过去对冲基金一直被中国政府认为是短期资本。

3 根据2012年6月7日发布并将于2013年1月1日开始实施的《商业银行资本管理办法(试行)》,“一级资本”包括以下项目(作适当调整):

  1. 实收资本或普通股;
  2. 资本公积;
  3. 盈余公积;
  4. 一般风险准备;
  5. 未分配利润;
  6. 少数股东资本可计入部分;以及
  7. 其它一级资本工具及其溢价。

该试行办法适用于在中国境内设立的商业银行。现在尚不清楚外国商业银行的一级资本是否会根据以上方法计算。

4 根据《规定》草案,QFII只能投资于在银行间债券市场交易的债券。我们推测,《规定》将QFII投资范围扩大到资产支持证券化产品,旨在支持最近公布的第三批信贷资产证券化试点项目以及中国银行间市场交易商协会于2012年8月3日公布实施的《银行间债券市场非金融企业资产支持票据指引》项下的资产支持票据项目。

5 30%上限和10%上限的限制不适用于根据《外国投资者对上市公司战略投资管理办法》进行的战略投资。

6 我们注意到,美国证券监管机关对其管辖权进行广义解释,包括其对“经纪交易商”和“投资顾问”行为的管辖权。特别是,美国证券交易委员会认为,如果一家非美国证券公司就债务证券或股本证券(包括非美国的证券和非美元计价的证券)向任何美国投资者发出要约或与任何美国投资者达成交易,或者寻求向美国投资者(包括QFII在内的机构投资者)提供投资咨询服务,美国证券交易委员会即对该非美国证券公司具有管辖权。所以,如果QFII是一家美国机构,则中国境内证券公司、托管银行和基金管理公司应当向精通美国证券监管法律的专家咨询,保证其向QFII发出要约和开立QFII账户的方式符合美国监管要求。

7 以遵守QFII相关法规内有关投资范围限制为条件,具体服务应根据《基金管理公司特定客户资产管理业务试点办法》的规定进行

8 参见尾注1。

This article was originally published by Bingham McCutchen LLP.