LawFlash

China Tightens Controls Over Repatriations by RQFIIs

April 16, 2013

中国收紧RQFII资金汇出限制

On March 1, 2013, Mainland China expanded the Renminbi Qualified Foreign Institutional Investor (“RQFII”) regime to enable, among others, eligible Hong Kong institutions which are not subsidiaries of the Mainland Chinese institutions to participate in the RQFII program. On March 11, 2013, the State Administration of Foreign Exchange (“SAFE”) issued the Notice on Issues Concerning the Pilot Project for Securities Investment in Mainland China by Renminbi Qualified Foreign Institutional Investor ( the “SAFE Notice”), which replaced a previous notice. The SAFE Notice tightens foreign exchange control over RQFIIs, by introducing into the RQFII program certain restrictions already imposed on Qualified Foreign Institutional Investors (“QFIIs”). Notably, repatriation of funds and products by RQFIIs (other than open-ended funds) are now subject to more limits.

I. Scope of Application

To track the expansion of the RQFII regime in March, the SAFE Notice applies to all types of RQFIIs (including both Mainland-China-Subsidiary-RQFIIs and other RQFIIs).

II. Remittances and Reparations
The SAFE Notice has almost no impact on repatriations and remittances with respect to an open-ended fund sponsored and established by an RQFII (“Open-ended Fund”). Repatriations and remittances by an Open-ended Fund can continue to be conducted on a daily basis, based on the net subscriptions or redemptions of the fund units, without being subject to a lock-up period or a prior approval so long as the net inward remittance amount does not exceed the granted quota.

Before the effectiveness of the SAFE Notice, Open-ended Funds and other funds and products of RQFIIs (“Other RQFII Funds”) were subject to substantially similar treatments on repatriations and remittances, except that repatriations and remittances by Other RQFII Funds could only be made on a monthly basis. The SAFE Notice imposes additional limits on repatriations and remittances by Other RQFII Funds, most of which have already been adopted by the QFII program. Major differences between the rules regulating remittances and repatriations with respect to Open-ended Funds and those applicable to Other RQFII Funds under the SAFE Notice are shown in the following chart.

Open-ended Funds

Other RQFII Funds

Limits on inward remittance

The net inward remittance amount for an Open-ended Fund must not exceed the granted quota applied by an RQFII on behalf of the fund.

The permissible inward remittance amount must be measured by reference to the net subscriptions of the units of the fund.

The cumulative inward remittance amount for Other RQFII Funds managed by an RQFII must not exceed the quota of the said RQFII.

The investment principal must be fully remitted into Mainland China within six (6) months of the date on which the corresponding RQFII quota is granted.

Lock-up period (i.e. the period during which that an RQFII cannot repatriate investment principal outside China)

Not Applicable

One (1) year following (i) the date on which the investment principal is fully remitted into Mainland China, or (ii) if the investment principal has not been fully remitted into Mainland China, the expiration of the six (6) months following the date on which the RQFII quota is granted

Repatriation frequency

Daily

Monthly

Other limits on repatriation

 

The permissible repatriated amount should be measured by reference to the net redemptions of the units of the fund

 

Any portion of the investment principal which has been repatriated outside China must not be re-remitted into China.

The RQFII quota is reduced to equal the difference between the original quota and the repatriated amount of  investment principal.

Approval

Repatriations are not subject to a prior approval.

III. Administrative Sanctions
The SAFE Notice expressly provides that several types of failures to comply with the rules shall be subject to administrative sanctions in accordance with relevant clauses of the Regulations on Foreign Exchange Control.

Conclusion

Open-ended Funds, being the only type of fund able to conduct repatriations on a daily basis under the QFII program and the RQFII program, have been granted important preferential rights that should make them attractive to foreign fund managers intending to invest in the securities market of Mainland China.


中国收紧RQFII资金汇出限制

自2013年3月1日起,中国大陆扩大了人民币合格境外机构投资者(“RQFII”)计划,在境内机构香港子公司之外,也允许其他合格的香港机构参与RQFII项目。2013年3月11日,国家外汇管理局(“外管局”)发布了《关于人民币合格境外机构投资者境内证券投资试点有关问题的通知》(“外管局通知”),并取代了之前相关的规定。外管局通知内引入特定的限制,收紧了对RQFII外汇资金的管制,这些特定的限制之前已经应用在合格境外机构投资者(“QFII”)项目上。值得注意的是,除开放式基金外,RQFII其它产品和基金的汇出目前将受到更多限制。

一、适用范围  
与今年三月份RQFII计划范围的扩大相一致,外管局通知适用于所有各类RQFII(包括境内机构香港子公司RQFII和其他RQFII)。

二、资金汇入和汇出
对于RQFII发起设立的开放式基金(“开放式基金”),外管局通知基本上不影响其资金的汇入和汇出。开放式基金仍然可以根据基金份额的净申购和净赎回情况,每日办理资金的汇入和汇出,且不受锁定期和事前审批要求的限制,只要基金累计净汇入的人民币资金不超过经批准的投资额度。

在外管局通知生效之前, 开放式基金以及RQFII其他资金和产品(“RQFII其他基金”)在资金汇入和汇出的问题上受到大致类似的对待,除了RQFII其他基金资金的汇入和汇出必须按月办理之外。 此次外管局通知对RQFII其他基金资金的汇入和汇出做出了额外的限制,这些限制大部分已经应用在QFII项目上。下表列出了在外管局通知中,就资金的汇入和汇出而言,适用于开放式基金和适用于RQFII其他基金的规则之间主要的不同之处。

开放式基金

RQFII其他基金

资金汇入的限制

开放式基金的资金汇入数额不得超过RQFII代表基金申请获批的投资额度。

 

允许汇入的资金数额应该根据基金份额净申购的情况计算。

 

RQFII其他基金资金汇入数额不得超过该RQFII的投资额度。

投资本金应在每次相应的RQFII投资额度获批之日起六(6)个月内汇入中国。

锁定期 (即禁止RQFII将其投资本金汇出中国境外的期限)

不适用

一(1)年锁定期,自(i)投资本金足额汇入中国本金之日起计算,或(ii)未在规定时间内汇足投资本金的,自投资额度获批之日起六(6)个月后开始计算。

资金汇出频率

按日办理

按月办理

其他对资金汇出的限制

 

允许汇出的资金数额应该根据基金份额净赎回的情况计算。

 

汇出中国的本金部分不得再重新汇入中国。

RQFII投资额度应根据已汇出本金部分做相应调减。

审批

资金汇出不需要经过事前审批

 

III. 行政处罚
外管局通知中明确,RQFII违反有关规定的,按照《外汇管理条例》相关条款进行处罚。

结论
开放式基金作为在QFII和RQFII项目中唯一可以按日进行资金汇出的基金形式,在政策上得到了重要的优惠对待,因此也将受到意图投资中国大陆证券市场的境外基金经理的青睐。

 

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:

Beglin-Brian
Ye-Xiaowei

This article was originally published by Bingham McCutchen LLP.