The State Administration of Foreign Exchange (“SAFE”) released an updated version of the Foreign Exchange Administrative Provisions on the Domestic Securities Investment by Qualified Foreign Institutional Investors (“QFII”) (the Regulation) on June 10th 2018.
Two days later, SAFE, together with the People's Bank of China, jointly issued an updated version of the Circular on Administration of Domestic Securities Investment by Renminbi Qualified Foreign Institutional Investors (“RQFII”) (the Circular).
The Regulation and the Circular, taking effect as of their respective issuance date, have removed the relevant restrictions on funds remittance and repatriation, and further streamlined the foreign exchange administration under the QFII and RQFII regime.
Said Regulation has facilitated investments made by QFII and RQFII by removing, among other things 1) the 20% monthly repatriation limit for QFIIs, 2) the three-months lock-up period requirement for both QFII and RQFII products/accounts which are not open-ended funds and by permitting QFIIs and RQFIIs to engage in foreign exchange hedging to offset the risks arising from foreign exchange rate in domestic investments.
Developments brought by the Regulation and the Circular help address several concerns which market participants previously held, including liquidity, cross-border remittance restrictions and hedging demand.
The issuance of the Regulation and the Circular is another important step taken by the Chinese government to further open up its capital market.