One infographic to understand the QFII restrictions lift and key changes explained

Key takeaways for investors and policymakers 

1. (R)QFII qualifications and regulations have been unified and the entry requirements have been loosened.The restriction on the numbers of entrusted intermediary institutions has also been canceled, and data submission requirements have been reduced. 

2.   (R)QFII’s are allowed to invest in securities listed on China’s National Equities Exchange and Quotations System, as well as privately offered investment funds, financial futures, commodities futures, and options. They are also allowed to participate in bond repos, as well as margin securities lending and securities refinancing loan transactions on securities exchanges. 

3.   Strengthen cross-market supervision, cross-border supervision, administration and across-the-board supervision and administration. Strengthen punishments for regulatory breaches and refine applicable regulatory measures for specific breach conditions. Domestic analysts expect the rules to further attract the participation of more foreign investors in China’s securities futures market and expand the international influence of China’s capital markets as well as further drive internationalization of the renminbi. (CBN Editor, 2020)

Since the launch of QFII in 2002 and RQFII in 2011; more than 400 institutional investors; 124 among them are PRI Investors from 31 countries and regions around the world have invested in China's financial markets through these channels, sharing the achievements of China's reform, opening up and economic growth, and also actively promoting the healthy development of China's financial markets, said SAFE (2019)

The value of the A stock market held by QFII institutions was 770 billion yuan, an increase of 14.4% from the end of 2019. According to data from iFinD, as of now, 322 overseas institutions have received a total of US$115.98 billion in QFII approval quotas which is only 38.7% of the total utilization rate of US $ 300 billion; and 231 overseas institutions have received a total of RQFII approval quotas of RMB 721.992 billion and the total RQFII utilization rate was only 36.3%.

The change of the QFII is a big step for the scheme to be more competitive compare to the existing methods that have been introduced to enter the Chinese financial markets. The new rules, effective since 1 November 2020, will help optimize the mechanism for the further development of China's capital market, continuously adapt to the needs of foreign investors, attract more medium and long-term funds into the market, and better stimulate the vitality of market players, according to Guotai Junan Securities. More PRI players are expected to shape the climate finance land scale in Chinese financial markets. A more competitive way to enter the Chinese market is happening.

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(Written by Yitong Yuan)

Similar topic: The limit for foreign institutional investors to invest in China domestic securities will be lifted

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