On 28 July 2012, the China Securities Regulatory Commission ("CSRC") released a revised regulation on the Qualified Foreign Institutional Investor ("QFII") program with the aim of making it easier for QFIIs to invest in China's capital market. The QFII program was introduced in 2002 as the primary program for foreign investors to enter China's capital market. Under this program, a QFII applicant may apply for a licence from CSRC and an investment quota from the State Administration of Foreign Exchange ("SAFE") to invest in China's domestic securities market. Ever since the program was introduced, China has been putting efforts into lowering the barriers for QFIIs' entry. The important changes brought about by the new regulations are highlighted below.
- The minimum qualification requirements for QFII applicants are lower.
- For securities companies, the track record period requirement is lowered from 30 years to five years; the requirement for paid-up capital of no less than USD 1 billion is replaced with the requirement for equity of no less than USD 500 million. The minimum requirement for assets under management has been lowered from USD 10 billion to USD 5 billion.
- For commercial banks, the banks should have been in the banking business at least 10 years and have at least USD 300 million Tier 1 capital, and the minimum requirement for assets under management is lowered from USD 10 billion to USD 5 billion.
- For foreign asset-management institutions, insurers and other institutional investors, such as pension funds and government-backed investment companies applying for QFII licences, the minimum requirement for their assets under management has been lowered from USD 5 billion to USD 500 million.
- Applicants are required to apply online, though submission of hard copies to the CSRC is still required.
- The ceiling is raised to 30% from the current 20% on the combined stockholding by all QFIIs in any listed company in China's domestic RMB-denominated A-share market.
- A QFII may now open separate nominee accounts for differently underlying clients.
- In a separate CSRC statement about the new regulation, QFIIs may now invest in China's fast-expanding interbank bond market and newly built high-yield bond market.
Despite the positive changes brought by the new regulation, there are still obvious restrictions on and uncertainties for QFIIs. For example, it is still not that easy for QFIIs to transfer funds in and out of China, and the tax position of QFIIs in China has not been clarified. Many of these issues are clearly not within the jurisdiction of the CSRC and, therefore, foreign investors are expecting more concerted efforts from the various Chinese authorities concerned.