On November 7 2002, the China Securities Regulatory Commission and the People's Bank of China jointly issued the Interim Measures on Administration of Domestic Securities Investment of Qualified Foreign Institutional Investors (QFII). These measures allow foreign investors to invest in publicly traded, yuan-denominated A shares, treasury and corporate bonds listed on the Shanghai and Shenzhen stock exchanges. The new rules became effective December 1.
The rules state that foreign fund-management companies, insurance companies and brokerages will have the right to apply for the status of qualified institutional investor. However, foreign investors must meet various requirements.
Foreign fund managers must have a minimum of five years of industry experience and $10 billion in assets under management in the last financial year. Insurance companies and foreign brokerages must have been in business for more than 30 years, as well as having minimum paid-up capital of $1 billion and securities assets of $10 billion or more in the last financial year. Commercial banks should rank among the world's top 100 in terms of their asset value in the last financial year. They must also have managed securities assets of at least $10 billion.
Under the rules, foreign investors must set up special Renminbi accounts with banks operating in China. The banks will act as custodians for assets used for investment, and they will use domestic securities companies to execute the trades.
Each qualified foreign investor can only acquire up to 10% of the shares in a listed company. The overall number of shares held by foreign investors cannot exceed 20% of total share capital of a listed company. Each qualified foreign investor will be granted certain foreign exchange quotas for the remittance of capital in and out of China.
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