Access for foreign investors to access the securities market opens up

Incentivize long-term investment to push China's capital market towards healthy development

Source: http://finance.sina.com.cn
Date: Aug. 26, 2006
Source: Beijing Morning Post

Xinhua News Agency, Beijing, Aug. 25, 2006: Aug. 25, the China Securities Regulatory Commission (CSRC), the State Administration of Foreign Exchange (SAFE) and People's Bank of China (PBC) jointly issue the Administrative procedures for Investments of Qualified Foreign Institutional Investors (QFII) in domestic securities (hereafter referred to as the administrative procedures). The administrative procedures have largely lowered the threshold that the QFII must meet in order to access China's securities market in an effort to encourage long-term investment in this market and to push China's capital market towards healthy development.

According to the CSRC, the administrative procedures are based on the Provisional Measures on Administration of Domestic Securities Investments of Qualified Foreign Institutional Investors (QFII). The administrative procedures aim to implement the directive of the central government for perfecting and advancing pilot projects involving QFIIs as provided in "Some Opinions of the State Council of the People’s Republic of China, on Promoting the Reform, Opening and Steady Growth of the Capital Market."

The administrative procedures not only appropriately incline towards long-term investment but also complete detailed provisions on investment supervision. The administrative procedures that fall into seven chapters of 37 articles will go into effect on Sept. 1.

The administrative procedures appropriately adjust the criteria for the qualification of QFIIs. The size of securities managed by fund management institutions and insurance companies within one fiscal year has decreased from US$10b to US$5b. The limit on the actual received capital for insurance companies has been annulled and the limit on the number of years after establishment has been cut from 30 years to 5 years.

According to the administrative procedures, other investment institutions (pension foundations, charity foundations, donation foundations, trusts and government investment management companies) must be at least five years old after establishment and the securities assets that were managed or possessed in the recent accounting year must be at least US$5b.

According to the administrative procedures, QFIIs are permitted to directly open securities accounts, the lockup period for QFIIs is appropriately eased and stipulations on supervision of the actual shareholders standing behind nominal QFII holders have been detailed. According to the CSRC, it plans to, in conjunction with related departments – gradually expand the size of QFIIs, to give full support to QFIIs that focus on long-term investment but face a low turnover rate, to guide the general direction of QFIIs' investment and to
actively pushing the securities market towards healthy development.