An overall map of the updated QFI Mechanism
On 21 June 2021, the first batch of four real estate investment trust funds in the field of infrastructure (REITs) were successfully listed at Shenzhen Stock Exchange (SZSE). Over the past year, these products have operated smoothly, the supporting system has been continuously improved, investors have actively participated, and the market function has been gradually brought into play— realizing the phased targets of “a stable and good start”. In June 2022, the relevant person in charge of SZSE said that SZSE will promote the high-quality development of the infrastructure REITs market from five aspects, one of which is “continue to support QFII and RQFII to invest in domestic REITs products”.1 It is a clear signal that among various channels for foreign investors to participate into the Chinese domestic market, the QFI mechanism is still the one being paid special attention to by the market participants and with unique advantages for investors.
The promulgation of the updated QFI Rules are attracting investors from world wide
On 25 September 2020, the China Securities Regulatory Commission (CSRC), together with other relevant authorities promulgated the Measures for the Administration of the Investment in Domestic Securities and Futures by Qualified Foreign Institutional Investors and Renminbi Qualified Foreign Institutional Investors (《合格境外机构投资者和⼈⺠币合格境外机构投资者境内证券期货投资管理 办法》) and its implementation rules (“QFI Rules“), which took effect on 1 November 2020. Upon the official launch of the QFI Rules, the Administrative Measures for Securities Investment Made in China by Qualified Foreign Institutional Investors issued by the CSRC, the People’s Bank of China (PBOC), and the State Administration of Foreign Exchange (SAFE) on 24 August 2006 (“QFII Rule“) and the Measures for the Pilot Program of Securities Investment Made in China by RMB Qualified Foreign Institutional Investors issued by the CSRC, PBOC and SAFE on 1 March 2013 (“RQFII Rule“) were repealed.
The QFI Rules have made it more convenient for QFII/RQFII to invest in mainland China by merging the QFII and RQFII qualifications and system rules into one, lowering the entry threshold, relaxing access conditions, simplifying application documents and shortening the time limit for examination and approval. Also, the QFI Rules have steadily and systematically expanded the scope of investment.
According to the information disclosed on the CSRC’s website2, from 1 November 2020 to 30 June 2022, up to 197 foreign investors from various jurisdictions, including but not limited to U.S., Singapore, Australia, and France, etc., have successfully obtained the QFI approvals from the CSRC.
Although the epidemic is still not completely over and various uncertainties still exist, based on the market news and frequent inquiries from our offshore clients, we understand that foreign investors are still full of enthusiasm for China’s domestic market. Therefore, to understand the relevant requirements and processes of QFI application as well as the functions of relevant participants should be valuable for foreign institutions’ business decision making.
2 http://www.csrc.gov.cn/csrc/c101900/c1029652/content.shtml, 2022.07.31.
Kevin Yuan is senior counsel, Ada Hu is partner and Lucca Li and Jocelyn Chen are associates of FenXun Partners which is a premier Chinese law firm. FenXun established a Joint Operation Office with Baker McKenzie in China as Baker McKenzie FenXun that was approved by the Shanghai Justice Bureau in 2015.
Baker & McKenzie FenXun (FTZ) Joint Operation Office is a joint operation between Baker & McKenzie LLP, an Illinois limited liability partnership, and FenXun Partners, a Chinese law firm. The Joint Operation has been approved by the Shanghai Justice Bureau. In accordance with the common terminology used in professional service organisations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. This may qualify as “Attorney Advertising” requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.
This client alert has been prepared for clients and professional associates of Baker & McKenzie FenXun (FTZ) Joint Operation Office. Whilst every effort has been made to ensure accuracy, this client alert is not an exhaustive treatment of the area of law discussed and no responsibility for any loss occasioned to any person acting or refraining from action as a result of material in this presentation is accepted by Baker & McKenzie FenXun (FTZ) Joint Operation Office.