QFII, RQFII platforms expected to have a better investing experience

China is simplifying rules to facilitate foreign institutional investor activity in its financial market — the latest move by the country to expand financial opening-up and attract investment from abroad, experts said on Monday.

On Friday, the People's Bank of China — the country's central bank — along with the State Administration of Foreign Exchange, released a set of draft revisions to the rules regarding how foreign institutional investors should manage their funds used for investment in onshore securities and futures.

Foreign institutional investors are overseas institutions that invest in China's onshore financial market via the Qualified Foreign Institutional Investor (QFII) or the Renminbi Qualified Foreign Institutional Investor (RQFII) platforms — both examples of China's financial market opening-up — as well as other modalities such as stock and bond connects.

Compared with the existing rules that took effect in 2020, the draft rules streamline the process for foreign institutional investors to register their funds with SAFE, reduce the number of accounts they need to open and provide greater ease to remit onshore earnings abroad and engage in foreign exchange risk management.

An unnamed SAFE official said the revisions are part of the country's efforts to establish simple, clear and consistent rules regarding the management of foreign investors' funds used for investment in China's onshore financial market.

"The proposed changes will largely enhance qualified foreign institutions' operating efficiency," said Ben Li, head of securities services at Deutsche Bank China. "It demonstrates the confidence and determination of the PBOC and SAFE to further open up China's capital market."

One of the most important changes that will save foreign institutional investors' operating costs and enhance their confidence to invest in China's financial market is the item regarding earnings remittance, Li said.

Under the new rules, foreign institutional investors will require only one letter showing their commitment to complying with tax regulations to remit their onshore earnings abroad, rather than providing such materials each time they remit their earnings.

Also, the new rules stipulate that foreign institutional investors will be eligible to access onshore foreign exchange market transactions via not only their custodian banks, but also other qualified domestic financial institutions.

Li said this will encourage more long-term foreign institutional investors to invest in China by enhancing the transparency and fairness of foreign exchange rates available to them, which is one of the key offshore regulatory and internal control requirements.

Officials and experts said the draft revisions are a response to the central financial work conference's call to create a unified and coordinated regulatory framework for the financial market to promote the formation of long-term capital.

The unnamed SAFE official said that once the revisions are effective, QFII and RQFII investors will be eligible for generally the same registration procedures, foreign exchange risk management tools and currency exchange rules as China Interbank Bond Market (CIBM) investors, or foreign investors directly participating in China's interbank bond market.

Liang Si, a researcher at Bank of China's research institute, said the alignment of rules under two plans indicates that fund management rules facing both QFII and RQFII investors have been further eased, which will provide them with a better investing experience in China's financial market.