The Qualified Foreign Institutional Investors regime (QFII) under Chinese law refers to a market opening mechanism that allows foreign investors to invest in the Chinese capital markets while China’s capital accounts are not fully opened to the global market.
Foreign fund companies, insurance companies, securities houses, commercial banks and other asset management companies (including foreign pension funds, trust companies, charity funds, and sovereign investment funds) can qualify to be a QFII after approval by CSRC. Based on CSRC’s approval, the China State Administration of Foreign Exchange (SAFE) will allocate a quota to a qualified QFII for its investment in China up to a maximum of US$ 1 billion. The QFII’s scope of permitted investment covers all RMB denominated securities and financial instruments, including stocks, bonds and warrants traded publicly, SIFs, stock index futures and other instruments permitted by CSRC.
The Qualified Domestic Institutional Investors regime (QDII) creates a parallel regime to the QFII whereby qualified Chinese financial institutional investors are permitted to invest in overseas capital markets, by either using foreign currency already held by the participating inventors or by raising RMB funds from Chinese individuals and institutions.
Chinese commercial banks, trust companies, FMCs, securities companies and insurance companies may qualify to become QDIIs. Each category of QDII is required to meet certain qualification standards as set out by its relevant regulator. The investment scope of a QDII differs depending on the categories in which it falls into.
It is also worth noting that, other than QDIIs, Chinese sovereign wealth funds (such as China Investment Corporation, National Council for Social Security Fund and SAFE Investment Company) are key players in investment into overseas markets.
This capital outflow regime provides opportunities for foreign financial institutions to act as investment managers and advisers for, and distribute their financial products to, qualified Chinese onshore investors. Together, QFII and QDII establish a two-way channel for capital to flow in and out China for financial investments via major institutional investors.
For the purpose of this briefing, China means the People's Republic of China which excludes Hong Kong and Macau Special Administrative Regions and Taiwan.