PRC asset management updater - semi-annual review 2011

Publication | December 2011

December 2011: Chinese government launched Renminbi QFII (RQFII) scheme on a pilot basis

Only two months after the People’s Bank of China (PBOC) and the Ministry of Commerce issued their new rules permitting the utilisation of offshore Renminbi (RMB) funds for foreign direct investment into mainland China, the China Securities Regulatory Commission (CSRC), PBOC and the State Administration of Foreign Exchange (SAFE) announced on 16 December 2011 that Hong Kong subsidiaries of Chinese qualified fund management companies (FMCs) and securities companies can now, on a trial basis, invest RMB funds raised in Hong Kong in the mainland securities markets. The Hong Kong Securities and Futures Commission (SFC) has welcomed the CSRC announcement and will work closely with its regulatory counterparts and relevant authorities to implement this pilot scheme.


The new RQFII scheme is very similar to the Qualified Foreign Institutional Investors (QFII) schemes which permit foreign investors to indirectly invest in the Chinese securities market through qualified foreign institutions with approvals from CSRC and SAFE. The new pilot scheme will allow Hong Kong subsidiaries of Chinese FMCs and securities houses to raise RMB funds in Hong Kong, and on CSRC’s approval, invest such funds back into the Chinese securities market. SAFE will be responsible for approving the permitted quota for such Hong Kong subsidiaries’ inbound securities investments and also for supervising the inflow and outflow of funds. The PBOC as the central banking authority will supervise the custodian bank accounts in China opened by such Hong Kong subsidiaries for their portfolio investments in China.

Credential and application requirements

The new regulations require Hong Kong applicants to be SFC regulated asset managers (i.e. holding a Type 9 (Asset Management) licence) and have an “asset management” business track record of at least 3 years. The Chinese parent companies must also be permitted by CSRC to engage in asset management within China and must not have been subject to disciplinary proceedings by local or central CSRC for any material non-compliant activities for at least the last 3 years.

A qualifying Hong Kong subsidiary should first apply to CSRC for approval of its proposed investment plans. After CSRC’s approval (to be issued within 60 days of its formal acceptance of the Hong Kong subsidiary’s application), the Hong Kong applicant should apply to SAFE in order to be granted a quota for the proposed inbound securities investment. Upon being granted this quota, the Hong Kong subsidiary can then commence its investment by remitting RMB funds from Hong Kong to its accounts opened with Chinese custodian banks, and trade permitted securities in China with the assistance of Chinese securities houses. The new regulations allow one single Hong Kong RQFII to trade securities on the two Chinese securities exchanges by engaging no more than three securities houses for each securities exchange.

Portfolio restrictions

Other than public securities, including stocks, bonds, securities investment funds etc. traded on Chinese securities exchanges, the new regulations indicate that the Hong Kong RQFIIs can also invest their RMB funds raised in Hong Kong in: (1) the Chinese inter-bank bonds market in accordance with the relevant regulations of PBOC; and (2) the subscription of newly issued stocks (in IPOs), trading of convertible bonds and certain secondary offerings. However, CSRC requires that, subject to the permitted quota, a maximum of 20 per cent of the Hong Kong RQFII’s RMB funds be invested in stocks or stock-type funds, with at least 80 per cent of the RMB funds invested in fixed-income products such as bonds.

It is reported that investors now hold at least RMB 700 to 800 billion in Hong Kong. CSRC will initially permit RMB 200 billion in total to be invested back into the mainland under the pilot RQFII scheme. Although the initial total quota seems to be small vis-à-vis market needs for the RMB's internationalisation, the launch of this new scheme is considered by the market as a milestone that will provide new market opportunities for Chinese FMCs and securities houses in their globalisation strategies.

For any information, please contact Lynn Yang or James Zhang in Shanghai or Charlotte Robins in Hong Kong.

October 2011: CSRC’S implemented its amended rules on Securities Investment Fund (SIF) management companies’ segregated account business


CSRC amended its Provisional Regulations on the Segregated Account Asset Management Business of Fund Management Companies (in Chinese: 基金管理公司特定客户资产管理业务试点办法) of 2008 in August 2011. The new regulations (effective from 1 October 2011) have combined and replaced the original 2008 regulations as well as the prior regulations on “one-to-many” business model promulgated in 2009. In terms of the application by an existing SIF management company for commencing such business, CSRC further published certain specific rules on such application details and compliance requirements in its separate circular [2011] No. 27 which came into force from 8 October 2011.

Major changes

Major changes under the new regulations include:

  • the prior 2-year pre-existence requirement for SIF management companies which wish to engage in segregated account business is now abolished;
  • as regards the qualification of clients for segregated account business, the original entry threshold for clients in the “one-to-one” business model (i.e. the minimum initial investment of RMB 50 million) has further been reduced to RMB 30 million;
  • a series of detailed requirements in respect of the prospectus of segregated account products launched by SIF management companies are also set up in the new regulations, and the procedures for the filing with CSRC which is prerequisite for launching any such asset management products are now standardised; and
  • certain maximum portfolio investment requirements are further introduced in the new regulations. Under the new regulations, one segregated account’s investment in the stocks of a single listed company should not exceed 20 per cent of the net value of this segregated account. In addition, the investment in the securities of one single company by all the segregated accounts managed by one SIF management company should not exceed 10 per cent of all such securities of the company.

These regulations essentially relaxed the thresholds for both clients’ and SIF management companies’ entry into the segregated account business in China and standardise the relevant compliance and procedural requirements.

For any information, please contact Lynn Yang or James Zhang in Shanghai.

July 2011: CSRC published the guidelines on securities companies’ direct investment business


On 8 July 2011, CSRC promulgated the Guidelines on the Supervision and Management of Direct Investment Business of Securities Companies (in Chinese: 证券公司直接投资业务监管指引), which permit and specify the requirements for Chinese qualified securities houses to conduct direct equity investment business and private equity business in China.

New business opportunities for securities houses

These guidelines require a securities house to set up a direct subsidiary for any proposed direct investment in other Chinese enterprises, and allow such a direct subsidiary to:

  • invest in other Chinese enterprises by utilising its own funds,
  • provide its clients with financial consulting services relating to equity investment business,
  • establish or participate in a private equity fund, collect and manage the funds of its clients for equity investment,
  • subject to certain restrictions, invest in publicly issued state bonds, corporate debts, currency market funds,securities investment fund, collective investment schemes (CISs), etc., and
  • engage in other business permitted by CSRC.

These guidelines for the first time set forth the regulatory requirements (reporting, investment decision making, etc.) for a securities company to invest in various products other than securities underlining/sponsoring/trading.

For any information, please contact Lynn Yang or James Zhang in Shanghai.

July 2011: CSRC issued new rules requiring audit upon the departure of managers in SIF management companies


Under the current Chinese law, the departure of certain management personnel from SIF management companies or SIF’s custodian banks is subject to a compulsory audit to be conducted by the relevant qualified accountants engaged by their original employers. CSRC issued the Rules for the Off-office Audit for the People in the Fund Industry and the Content of Audit Reports (in Chinese: 基金行业人员离任审计及审查报告内容准则), which became effective from 1 October 2011, to specify the requirements in respect of such audit.

Scope and requirements

Management persons in mutual fund industry subject to such off-office audit includes the Chairman, general manager, deputy general manager, chief inspector, fund manager and investment managers in a SIF company, senior managers in the custody department of a SIF custodian bank, and senior management personnel in an independent SIF sales agency or those responsible for SIF consultancy business in a securities consulting firm. Within 30 working days after his/her departure from the original employer, the original employer should conduct an audit on his/her performance, compliance, etc. during his/her term of service at once and file the audit report with CSRC.

The new rules specify the requirements, scope, etc. of, and outline the necessary contents of the audit report for, such compulsory audit, which indicates CSRC’s tightened control/supervision on SIF professionals with the purpose to avoid insider transactions or other non-compliant activities.

For any information, please contact Lynn Yang or James Zhang in Shanghai.

June 2011: The China banking regulatory commission (CBRC) permitted trust companies to manage investment in stock index futures in China


On 27 June 2011, CBRC issued the Guidelines on the Trading of Stock Index Futures by Trust Companies (in Chinese: 信托公司参与股指期货交易业务指引) allowing qualified trust companies, either directly (by utilising their own funds) or indirectly (by CIS managed by them, etc.), to trade stock index futures in China.

New downstream investment portfolio for CIS business

According to these guidelines, the funds under a CIS may be utilised in trading stock index futures for either hedging or interest arbitrage purposes, while the funds under a single investment scheme (SIS) could additionally be invested in stock index futures for speculation. A trust company intending to engage in such business should first apply to the relevant local CBRC branch and then the final approval will be subject to the central CBRC’s scrutiny.

Similar to the legal regime on CIS’ securities business of a trust company, the trust company trading stock index futures should appoint a custodian bank and can also engage a third-party advisor. Requirements on such a third-party advisor are similar to those imposed on the third-party advisors for CIS products (e.g. a minimum paid-in capital of RMB 10 million, a professional team the members of which passed the relevant securities and/or futures business professional qualification exams, etc.)

These new guidelines show the tendency on CBRC’s efforts to broaden the scope of business activities for trust companies.

For any information, please contact Lynn Yang or James Zhang in Shanghai.



Lynn Yang

Lynn Yang