Interpretation of CSRC announcement on 31st Jan 2019
First, consolidating separate QFII and RQFII measures and provisions. The current separate QFII and RQFII measures and provisions are integrated into one set of measures and provisions. In accordance with the new Measures and Provisions,
foreign institutions shall make a one-time application for the qualification status. Meanwhile, institutions from countries and regions without RQFII quota can only make investments with funds raised in foreign currencies.
——The step of consolidation is a facilitation measure that combines the overall quota and simplifies the management procedures.
The RMB can be exchanged freely with foreign currency in the offshore market, which driven offshore RMB flowed back to mainland.
It should be said that this item is an initiative to expand the offshore market of the renminbi.
Second, relaxing qualification requirements. The quantitative criteria are removed, whereas the compliance requirements and the requirements on the types of institutions are maintained.
Meanwhile, application documents are simplified, and the review process is streamlined.
——CSRC plan to cancel the conditions on assets scale etc when apply for the license. The qualification requirement for now is as following:
Third, expanding scope of investment. In addition to the products within the current investment scope of QFII and RQFII, the new Measures and Provisions expand the investment scope to include more products such as:
(1) stocks quoted on the National Equities Exchange and Quotations (NEEQ, or the New Third Board) market, (2) bond repurchases, (3) private investment funds, (4) financial futures, (5) commodity futures, (6) options, etc.
(2) Qualified investors are also allowed to participate in margin trading and securities lending in stock exchanges.
(3) Furthermore, it is clarified that relevant trading venues shall propose the inclusion of specific products of bond repurchases, financial futures, commodity futures, and options into the investment scope to the regulatory authority for approval.
——Investment scope will increase considerably, which means that foreign investors can participate in almost all products in domestic market, can diversify investment strategies to meet different investment preferences, and can also use derivatives to manage risks. This is a relatively large step forward and will vastly increase the attractiveness of China market. Foreign investors hope to enjoy the dividends of China's economic growth. They mostly invested in value stocks when trade A-share. Now foreign investors can invest in growth stocks, technology stocks, or hedge the risk through derivatives. Compared with the past, the trading tools and strategies of foreign investment are more flexible, which encourage them to allocate more positions in China market.
*QFII/RQFII can invest private investment funds which also benefit the WOFE who get the private funds license last two years, they no need try so hard to raise funds in mainland market only.
Fourth, optimizing management of custodians. The Measures and the Provisions update relevant articles on the management of QFII custodian qualification, which has already been shifted from an approval-based item to a registration-based item, and remove the restriction on the number of custodians appointed by a QFII.
Fifth, enhancing ongoing supervision. The Measures and the Provisions improve QFII account management, monitoring and oversight mechanisms, require additional disclosure of information on offshore hedging positions related to onshore transactions, and specify penalties against violations of laws and regulations.