China Removes Foreign Investment Threshold on Domestic Securities, Futures

Chinese financial authorities relax controls over foreign institutional investors.

Author: Belinda Zhou   

China's central bank ramped up its opening policy for overseas institutional investors on Thursday, announcing the cancellation of their capital requirement.

The People's Bank of China and the State Administration of Foreign Exchange issued a report, Regulations on the Management of Domestic Securities and Futures Investment for Overseas Institutional Investors, on May 7. 

The first policy under the new regulation is that Qualified Foreign Institutional Investor, or QFII, as well as the Renminbi Qualified Foreign Institutional Investor, RQFII, can invest directly in Mainland China's bond and equity markets without requirements for investment quotas and trading accounts.

The qualified investors like QFIIs and RQFIIs only need to register for their cross-border capital remittance and exchange. 

The authorities said in the statement that the aim of the regulation is to further facilitate the participation of foreign investors in the Chinese financial market.

"The cancellation of QFII and RQFII investment quota management requirements is due to the continuous opening of two-way open channels in the domestic capital market, resulting in a decline in the need for QFII and RQFII quota management," Zunxin Zhang, a professor at Fudan University, said in an interview with Chinese business media.

"As a transitional financial arrangement for financial opening, the QFII system has completed its mission," Zhang added.

Chinese regulators also greatly simplified the procedures for remittance of domestic securities investment income of qualified investors. Foreign investors can just summit tax payment commitment letters going forward. In the past, investors were required to file materials such as the special investment income audit report and tax filing form issued by Chinese certified public accountants.

QFIIs and RQFIIs are free to independently choose the local and foreign currency and the timing of remitted funds.

China introduced QFIIs in 2002, with which global institutional investors can invest in its renminbi-denominated capital market like "A-shares" in China's mainland Shanghai and Shenzhen stock exchanges.

RQFII is a modified version of QFII that allows foreign investment in the mainland via offshore renminbi accounts.

As of Thursday, 295 licensed QFIIs are allowed to invest $114.7 billion in China, according to Choice data. The total number of A-shares held by QFII reached 371 by the end of the first quarter. Tech stocks comprise the majority.