Announcement of the State Administration of Foreign Exchange

(No. 1 [2018])
In accordance with the Regulation of the People's Republic of China on Foreign Exchange Administration and other relevant provisions, the State Administration of Foreign Exchange (“SAFE”) has developed the Provisions on the Foreign Exchange Administration of Domestic Securities Investment by Qualified Foreign Institutional Investors, which are hereby issued, and shall come into force on the date of issuance.
State Administration of Foreign Exchange
June 10, 2018
Provisions on the Foreign Exchange Administration of Domestic Securities Investment by Qualified Foreign Institutional Investors

Chapter I General Provisions
Article 1 For the purposes of regulating the foreign exchange administration of domestic securities investment by qualified foreign institutional investors (hereinafter referred to as “QFIIs”), these Provisions are developed in accordance with the Regulation of the People's Republic of China on Foreign Exchange Administration (Order No. 532, State Council, hereinafter referred to as the “Regulation on Foreign Administration”), the Measures for the Administration of Domestic Securities Investment by Qualified Foreign Institutional Investors (Order No. 36, CSRC, PBC and SAFE) and relevant provisions.
Article 2 For the purposes of these Provisions, “QFIIs” means foreign institutional investors that invest in the domestic securities market with the approval of the China Securities Regulatory Commission (hereinafter referred to as the “CSRC”).
Article 3 A QFII shall entrust its domestic custodian (hereinafter referred to as the “custodian”) to undergo the relevant formalities as required by these Provisions on behalf thereof.
Article 4 The SAFE and its branches and foreign exchange administrative departments shall, in accordance with the law, oversee, administer and inspect the investment quotas for QFIIs' domestic securities investment (hereinafter referred to as “investment quotas”), foreign exchange accounts, fund receipts, payments and remittance, among others.
Chapter II Investment Quota Management
Article 5 The state shall conduct quota management of QFIIs' domestic securities investment. The investment quota of a single QFII shall be subject to the recordation and approval administration by the SAFE.
A QFII may, after obtaining the qualification license from the CSRC, obtain in the form of recordation an investment quota of not more than a certain proportion (hereinafter referred to as the “basic quota”) of its asset size or the size of securities assets managed by it (hereinafter referred to as the “asset size”). Any application for an investment quota beyond the basic quota must be subject to approval by the SAFE.
The investment quota of a foreign sovereign fund, central bank, monetary authority or any other institution shall not be subject to the restriction of the proportion of asset size, and such institution may obtain corresponding investment quota based on its needs for investment in the domestic securities market.
Article 6 The standards for the basic quota of a QFII are as follows:
(1) If the assets of (or assets managed by) a QFII or the group to which it is affiliated are mainly outside China, the formula for calculating the basic quota is: USD 100 million + average asset size in the last three years * 0.2% - obtained quota for RMB qualified foreign institutional investors (in US dollar, hereinafter referred to as the “RQFII quota”).
(2) If the assets of (or assets managed by) a QFII or the group to which it is affiliated are mainly within China, the formula for calculating the basic quota is: five billion yuan or its equivalent + asset size in the last year * 80% - obtained RQFII quota (in US dollar).
(3) The basic quota shall not exceed USD five billion (including institutions such as foreign sovereign funds, central banks and monetary authorities).
(4) The basic quota shall not be less than USD 20 million.
The aforesaid currency exchange rates conversion shall be conducted by referring to the table of conversion rates between US dollar and other currencies published by the SAFE in the month immediately preceding the date of application.
The SAFE may adjust the aforesaid standards by taking into overall consideration the balance of payments, capital market development and opening-up and other factors.
Article 7 A QFII applying for the recordation of investment quota within the basic quota shall submit the following materials to the custodian:
(1) A statement on application for the recordation of investment quota, to which the Registration Form of Qualified Foreign Institutional Investors (see Annex 1) is attached.
(2) The balance sheet of the QFII in the last three years or in the last year (or the audit report or certification materials on the size of securities assets managed by it, among others), which has been audited or granted recordation by the local regulatory department.
(3) The photocopy of the qualification licensing certification document issued by the CSRC.
The custodian shall conscientiously perform its functions, strictly examine the certification materials on the QFII's asset size, and obtained RQFII quota, among others, and, after accurately verifying the QFII's basic quota and the investment quota to be granted recordation under the standards according to the domestic and overseas distribution of the assets of the QFII or the group to which the QFII is affiliated, and before the 10th day in each month, submit in a centralized manner the QFII's application for the recordation of investment quota to the SAFE for recordation (see Annex 2 for the recordation form). The SAFE shall feed back the recordation information to the custodian after confirmation.
Article 8 Where a QFII applies for an investment quota beyond the basic quota, it shall submit the following materials to the SAFE through the custodian:
(1) A written application of the custodian and the QFII, stating in details the reasons for the application for the investment quota and the information on the use of the current investment quota. If the QFII applies for the investment quota for the first time, the Registration Form of Qualified Foreign Institutional Investors and the photocopy of the qualification licensing certification document of the CSRC shall be attached.
(2) The balance sheet of the QFII in the last three years or in the last year (or the audit report or certification materials on the size of securities assets managed by it, among others), which has been audited or granted recordation by the local regulatory department.
(3) Other materials required by the SAFE.
The SAFE shall announce the investment quotas of QFIIs on its website (www.safe.gov.cn) on a periodical basis.
Article 9 The SAFE shall conduct the balance management of QFIIs' investment quotas, that is, the accumulative net amount of funds remitted inward by a QFII shall not exceed its investment quota which is granted recordation and approved.
Where the funds remitted inward by a QFII are not in US dollar, the equivalent value in US dollar of the funds remitted inward by the QFII shall be calculated by referring to the table of conversion rates between US dollar and other currencies published by the SAFE in the month of inward remittance.
Article 10 Without approval, a QFII shall not resell or transfer in any form its investment quota to any other institution or individual.
Where the investment quota of a QFII is unable to be effectively used within one year from the date of recordation or approval, the SAFE shall be entitled to withdraw all or part of the unused investment quota.
Chapter III Account Management
Article 11 A QFII shall, based on the investment quota recordation information or approval document of the SAFE, and by consulting the content of the relevant control information form in the capital account information system, open corresponding foreign exchange account at the custodian for its own funds, clients' funds or open-end fund.
A QFII that has opened a foreign exchange account shall, in accordance with the relevant provisions of the People's Bank of China on the administration of domestic RMB settlement accounts of foreign institutions, open a special RMB deposit account corresponding to the foreign exchange account (hereinafter referred to as the “RMB account,” see Annex 3 Operating Guidelines for the Management of Domestic Accounts of Qualified Foreign Institutional Investors for the opening and use of relevant RMB accounts).
Article 12 The scope of income of a QFII's foreign exchange account shall be: principal remitted inward by the QFII from overseas, funds required for the payment of the relevant taxes and fees (taxes, custodian fees, audit fees, and management fees, among others), interest income, funds transferred from the QFII's RMB account after foreign exchange purchase and other income confirmed by the SAFE. The scope of expenditures shall be: funds transferred into the QFII's RMB account after foreign exchange settlement, income from the sale of domestic securities, cash dividends, interest, other funds, and other expenditures confirmed by the SAFE. The funds in a QFII's account shall not be used for any purpose other than domestic securities investment without approval.
Article 13 Under any of the following circumstances, a QFII shall realize its assets and close its foreign exchange account within one month, and its corresponding investment quota shall be nullified at the same time:
(1) The CSRC has revoked its qualification license.
(2) The SAFE cancels the QFII's investment quota in accordance with the law.
(3) Any other circumstance prescribed by the SAFE.
Chapter IV Remittance Administration
Article 14 A QFII may, according to the investment plan, among others, and within 30 working days before making any actual investment, notify the custodian to directly settle the foreign exchange funds required for the investment and transfer such funds into its RMB account.
Article 15 A QFII may entrust the custodian to handle the outward remittance of investment principal and proceeds. For the open-end fund, the custodian may handle the inward or outward remittance of the relevant funds on a daily basis according to the netting amount of subscriptions or redemption.
Where a QFII needs to remit outward the realized accumulative proceeds, the custodian may undergo the relevant outward fund remittance formalities for the QFII on the basis of the written application or instruction of the QFII, the special audit report on investment proceeds issued by a Chinese certified public accountant, and tax payment or tax recordation certificate (if any), among others.
Where a QFII conducts liquidation (including product liquidation), the custodian may undergo the relevant outward fund remittance and account close formalities for the QFII on the basis of the written application or instruction of the QFII, the special audit report on investment proceeds issued by a Chinese certified public accountant, and tax payment or tax recordation certificate (if any), among others.
Article 16 The SAFE may conduct macro and prudential management of outward fund remittance of QFIIs according to the economic and financial situations, the supply-demand relations in the foreign exchange market and the balance-of-payments status of China.
Chapter V Foreign Exchange Risk Management
Article 17 A QFII may handle the foreign exchange derivatives business through the custodian or domestic financial institution (hereinafter referred to as the “institution handling the foreign exchange derivatives business”) qualified for conducting the RMB foreign exchange derivatives business for clients (hereinafter referred to as the “foreign exchange derivatives business”). The institution handling the foreign exchange derivatives business shall follow the principle of conducting transactions based on actual needs in handling the foreign exchange derivatives business for QFIIs.
Article 18 A QFII that conducts the foreign exchange derivatives business shall follow the principle of conducting transactions based on actual needs.
The foreign exchange derivatives transactions of a QFII shall be limited to hedging the foreign exchange risk exposure incurred by its domestic securities investment. The foreign exchange derivatives exposure shall be reasonably related to the foreign exchange risk exposure under its domestic securities investment as the basis of transaction. The positions of foreign exchange derivatives held by a QFII shall be controlled within the RMB asset size corresponding to the domestic securities investment at the end of the last month (excluding RMB deposit assets in the special deposit account, here and below). The size of RMB assets of a QFII shall be calculated and monitored by the custodian, so as to ensure the authenticity and accuracy of asset size.
The positions of foreign exchange derivatives held by a QFII may be adjusted on a monthly basis. The QFII shall, according to the size of RMB assets corresponding to the domestic securities investment calculated by the custodian, adjust the positions of foreign exchange derivatives held within five working days after the end of each month to ensure the compliance with the principle of conducting transactions based on actual needs.
Article 19 The types of foreign exchange derivatives and settlement, among others, conducted by the institution handling the foreign exchange derivatives business for QFIIs shall be governed by the existing provisions on the administration of foreign exchange derivatives.
Article 20 An institution handling the foreign exchange derivatives business shall comply with the provisions on the administration of composite positions of foreign exchange settlement and sale, and fulfill relevant obligations of submitting statistical reports on foreign exchange settlement and sale in accordance with the Notice of the State Administration of Foreign Exchange on Issuing the Statistical Rules for Foreign Exchange Settlement and Sale of Banks (No. 42 [2006], SAFE), the Notice of the General Affairs Department of the State Administration of Foreign Exchange on Adjusting the Statistical Statements on the Composite Positions of Banks in Foreign Exchange Settlement and Sale and the Submission Methods (No. 129 [2012], General Affairs Department of the SAFE), the Notice of the General Affairs Department of the State Administration of Foreign Exchange on Issues concerning Adjustments to Statistical Statements on the Foreign Exchange Settlement and Sale of Banks (No. 4 [2017], General Affairs Department of the SAFE), and other provisions.
Chapter VI Statistics, Supervision and Administration
Article 21 A QFII shall, within ten working days after obtaining the investment quota for the first time, handle subject information registration through the capital account information system. The custodian shall handle subject information registration for the QFII after filing an application for the special institution code with the local foreign exchange authority on behalf of the QFII. If the QFII has obtained the special institution code for handling other cross-border or foreign exchange business, a new application is not required.
Article 22 Where a QFII falls under any of the following circumstances, the custodian shall, within five working days, apply to the SAFE for undergoing modification registration:
(1) Change of the name of the QFII, the custodian or any other important information.
(2) Change of product information.
(3) Any other circumstance prescribed by the SAFE.
Where a QFII changes its custodian, the new custodian shall be responsible for undergoing modification registration formalities for it.
Where the QFII or its major shareholder or actual controller has been given a serious punishment by any other regulatory authority (including any overseas regulatory authority), which may have a material impact on the investment operations of the QFII or causes suspension or cancellation of the relevant business qualifications, the custodian shall report to the SAFE in a timely manner.
Article 23 The custodian shall, in accordance with the requirements of the Notice of the State Administration of Foreign Exchange on Adjusting the Methods for the Submission of Data by Qualified Institutional Investors (No. 45 [2015], SAFE), submit the relevant regulatory and statistical data on QFIIs.
Article 24 Where a QFII commits any of the following conduct, the SAFE shall punish it in accordance with the Regulation on Foreign Exchange Administration and other relevant provisions, and may reduce or even cancel its investment quota:
(1) Transferring or reselling its investment quota without approval.
(2) Failing to provide relevant information and materials on domestic securities investment as required or providing false information and materials to the SAFE or the custodian.
(3) Exceeding the investment quota granted recordation or approved by the SAFE, or failing to handle inward and outward remittance of funds, foreign exchange settlement, purchase or payment as required.
(4) Failing to conduct the foreign exchange derivatives business as required.
(5) Any other conduct in violation of the provisions on foreign exchange administration.
Article 25 Where the custodian commits any of the following conduct, the SAFE shall punish it in accordance with the Regulation on Foreign Exchange Administration and other relevant provisions, and may suspend its acceptance of relevant business if the circumstances are serious:
(1) It fails to examine the assets, asset distribution, and basic quota of a QFII according to the prescribed standards, or falsely reports quota for recordation or provides false application materials.
(2) It handles inward remittance of principal for a QFII beyond the investment quota granted recordation or approved by the SAFE.
(3) It fails to undergo the formalities for the outward remittance of principal and proceeds for a QFII as required.
(4) It fails to open or close the relevant account for a QFII as required, or fails to undergo the formalities for the transfer and remittance of funds for a QFII within the prescribed scope of income and expenditure of the accounts.
(5) It fails to conduct the accounting of and monitor the domestic RMB assets of a QFII as required, or fails to handle the foreign exchange derivatives business for the QFII as required.
(6) It fails to submit the report on the relevant information, materials or statements to the SAFE as required.
(7) It fails to declare the balance-of-payments statistics and submit relevant statistical reports on foreign exchange settlement and sale as required.
(8) Any other conduct in violation of the provisions on foreign exchange administration.
Chapter VII Supplementary Provisions
Article 26 The materials submitted to the SAFE in accordance with these Provisions shall be prepared in Chinese. For those in both Chinese and foreign-language versions, the Chinese version shall prevail.
Article 27 These Provisions shall be subject to interpretation by the SAFE.
Article 28 These Provisions shall come into force on the date of issuance. The Provisions on the Foreign Exchange Administration of Domestic Securities Investment by Qualified Foreign Institutional Investors (Announcement No. 1 [2016], SAFE) shall be repealed concurrently. In the case of any discrepancy between other relevant provisions on foreign exchange administration and these Provisions, these Provisions shall prevail.
Annex 1: Registration Form of Qualified Foreign Institutional Investors
Annex 2: Recordation Form of Investment Quotas of Qualified Foreign Institutional Investors (QFII)