[ A D V E R T O R I A L ]
China further opens
up domestic financial
market for foreign
investment
China has updated its QFII and RQFII schemes to enable foreign institutional investors to
make the most of emerging opportunities, as one of a number of market developments.
China QFII and RQFII schemes refined
Aiming to further open up China’s domes-
tic financial markets to foreign investors,
China’s regulators released updated
Qualified Foreign Institutional Investor
(QFII) and Renminbi QFII (RQFII) regu-
lations to facilitate cross-border securities
investment and repatriation in June 2018.
The major changes include removing the
restriction on the monthly repatriation
amount (monthly net outflow shall not
exceed 20% of total assets as at the end
of previous year) on QFII, removing the
requirement of a principal assets lock-
up period for both QFII and RQFII, and
permitting QFII and RQFII to conduct
foreign exchange hedging within China.
The new changes resolve major concerns
of foreign investors on asset repatria-
tion. QFIIs and RQFIIs can use domestic
foreign exchange derivatives to hedge
exchange rate risks.
China A-shares will be included in FTSE
Russell’s global equity benchmarks from
June 2019
FTSE Russell, the global index provider,
announced that China’s A-share market
will be promoted to Secondary Emerging
Market status and included in the FTSE’s
global equity benchmarks from June 2019.
28
Global Custodian
Winter 2018
Stock inclusion will be calculated using
25% of investable market capitalisation
of the eligible large-, mid- and small-cap
designated securities from the FTSE
China A Stock Connect All Cap Index
(currently around 1250 stocks). Upon
completion of the first phase, China A
shares are expected to constitute 5.5% of
the total FTSE Emerging Index, rep-
resenting initial net passive inflows of
$10 billion of assets under management.
Within the FTSE Global All Cap Index,
China A Shares are projected to have a
weight of 0.57%. China will also be added
to the Watch List for possible inclusion in
FTSE’s global bond indexes, according to
Mark Makepeace, CEO of FTSE Russell.
Shanghai-London Stock Connect is coming
The Stock Connect scheme between
Shanghai Stock Exchange (SSE) and Lon-
don Stock Exchange (LSE) is approaching
its official opening, under which overseas
investors can invest in GDRs listed on the
LSE (with specific A shares listed on the
SSE as the underlying securities). China
domestic investors will be able to invest
in CDRs (with stocks listed on the LSE
as the underlying securities) listed on the
SSE. The CDRs will be the first step of the
stock connect scheme.
China announces three years’ tax exemp-
tion on foreign institutions’ interest gains
from onshore bond market investments
Corporate income tax and value-added
tax on foreign institutions’ interest gains
from onshore bond market investments
will be exempted for three years, in an
effort to open up and to further attract
overseas capital. The above tax exemp-
tion was announced at a State Council’s
executive meeting. Foreign institutions
(including but not limited to QFII, RQFII
and CIBM Direct) are entitled to cor-
porate income tax and value-added tax
exemption on interest gains from onshore
bond market investments for three years.
The QFII and the RQFII schemes are
major channels for foreign investment in
China’s capital market. The QFII scheme
was launched in 2002 for general global
investors, while RQFII was introduced in
2011 for global investors using offshore
RMB. So far, the RQFII scheme has ex-
panded to 19 countries/regions, which in-