In March 2013, China’s securities regulator issued a series of measures (collectively, the “New RQFII Rules”) that removed some restrictions and limitations under the RMB Qualified Foreign Institutional Investors (“RQFII”) pilot program. The RQFII pilot program, which provides a channel for investing Renminbi raised in Hong Kong into China’s securities markets, is a significant and growing offshoot of the Qualified Foreign Institutional Investors quota system. Under the New RQFII Rules, Hong Kong subsidiaries of China’s banks and insurance companies or a financial institution with its principal business place in Hong Kong are eligible to apply for a RQFII license. Previously, only Hong Kong subsidiaries of China’s fund management companies and securities companies were eligible. In addition to traditional RQFII investments like stocks, bonds or participation in an IPO, a licensed RQFII now may invest its approved investment quota in products traded on the interbank bond market, securities investment funds, stock index futures, etc. The New RQFII Measures also permit greater investment flexibility by eliminating the requirement that at least 80% of a RQFII’s assets be invested in fixed income instruments. The New RQFII Measures also impose some new restrictions. A RQFII must remit its investment capital into China within six months after issuance of quota approval and may not remit these funds outside China within 12 months after the funds have been fully remitted into China. Moreover, a RQFII may not hold more than 10% of the shares of a listed company, and RQFIIs collectively may not hold A shares of a listed company that represent more than 30% of total shares of that company, except in cases involving a strategic investment in the company.

(Source: Zhong Lun Law Firm)