By Hubert Tse, Partner, Boss & Young Attorneys at Law.

     Echo Liu, Partner, Head of Finance and Corporate of Boss & Young Attorneys at Law.

     Crystal Wang, Attorney , Boss & Young Attorneys at Law.

Article 5 The State implements quota administration for domestic securities investment of QFIIs. The State Administration of Foreign Exchange implements filing and examination and approval administration for investment quota of each QFII.   

Upon obtaining qualification permit from the CSRC, a QFII may, through filing, obtain a certain investment quota (hereinafter referred to as the "basic quota") which does not exceed the scale of its assets or the securities assets under its management (hereinafter referred to as the "scale of assets"); applications for investment quota in excess of the basic quota shall be subject to approval by the State Administration of Foreign Exchange.

Investment quotas of overseas sovereignty funds, central banks and monetary authorities etc shall not be subject to the restriction of scale of assets, and may obtain the corresponding investment quota based on its investment needs for the domestic securities market.

Article 7 Each application for investment quota by a single qualified investor shall not be less than the equivalent of US$50 million, and shall not exceed the equivalent of US$1 billion cumulatively. The State Administration of Foreign Exchange may adjust the aforesaid limits in accordance with the economic and financial trends, supply and demand relationship in foreign exchange market and status of balance of payments, etc.   

The upper limit of investment quota of sovereign funds, Central Banks and monetary authorities, etc may exceed the equivalent of US$1 billion.

A qualified investor shall not submit another application for additional investment quota within one year from approval of the previous application for investment quota.

Article 6 The following QFII basic quota standards apply:   

(1) where the assets of a QFII or its group (or assets managed by the QFII or its group) are mainly located overseas, the formula shall be: US$100 million + average scale of assets for the past three years x 0.2% – Renminbi QFII quota obtained (converted to US dollar for computation, hereinafter referred to as the "RQFII quota");

(2) where the assets of a QFII or its group (or assets managed by the QFII or its group) are mainly located in China, the formula shall be: equivalent value of RMB5 billion + scale of assets of the preceding year x 80% – RQFII quota (converted to US dollar for computation);

(3) shall not exceed US$5 billion (including overseas sovereignty funds, central banks and monetary authorities etc);

(4) shall not be less than US$20 million.

The aforesaid exchange rates used for computation shall make reference to the conversion table for various currencies against US dollar published by the State Administration of Foreign Exchange in the month preceding the date of application.

The State Administration of Foreign Exchange may make adjustments to the aforesaid standards, taking into consideration the international balance of payments, development and opening up of capital market etc.

Article 6 Qualified investors applying for investment quota, opening of foreign currency accounts and Renminbi special accounts shall provide the following materials to the State Administration of Foreign Exchange:   

(1) written application submitted by the custodian and the qualified investor, the contents of the written application shall include: basic information of the qualified investor, explanation on source of funds and investment plan, a letter of undertaking that the qualified investor will not withdraw investment within a lock-in period, etc and attach a "Registration Form of State Administration of Foreign Exchange for Qualified Foreign Institutional Investor" (see Appendix 1 for sample form);

(2) photocopy of the "Securities Investment Business Permit of Qualified Foreign Institutional Investor" issued by the China Securities Regulatory Commission (hereinafter referred to as the "CSRC");

(3) notarised power of attorney for the custodian of the qualified investors; and

(4) any other materials required by the State Administration of Foreign Exchange.

A qualified investor applying for additional investment quota shall, in addition to providing the materials stipulated in the aforesaid item (1) and item (4), provide the "Foreign Exchange Registration Certificate of Qualified Foreign Institutional Investor" (hereinafter referred to as the "foreign exchange registration certificate") and a statement on investments in China using its existing investment quota, the contents shall include: asset allocation and changes, investment gains and losses, status of performance of compliance and stock trading average turnover, etc.

Article 7 The following materials shall be submitted to the custodian for filing of investment quota within the basic quota for which the QFII applies:   

(1) explanation on the filing status of the investment quota, and completion of the "Registration Form for Qualified Foreign Institutional Investors" (see Appendix 1);

(2) audited balance sheet of the QFII for the past three years/the preceding year (or audit report for the scale of assets managed by the QFII etc); and

(3) photocopy of qualification permit issued by the CSRC.

The custodian shall perform its duties seriously, examine proof materials for the scale of assets of the QFII, the RQFII quota obtained etc, and upon verifying the basic quota and the proposed investment quota to be filed in accordance with the standards and based on the distribution of the assets of the QFII or its group in China and overseas, consolidate the applications for filing of QFII investment quota and fill with the State Administration of Foreign Exchange (see Appendix 2 for Filing Form). The State Administration of Foreign Exchange shall provide feedback of the filing information to the custodian upon confirmation.

Article 8 In the case of an application for investment quota which exceeds the basic quota, the QFII shall submit, through the custodian, the following materials to the State Administration of Foreign Exchange:   

(1) written application by the custodian and the QFII, stating in detail the reason for increase of quota and usage of the existing investment quota;

(2) audited balance sheet of the QFII for the past three years/the preceding year (or audit report for the scale of assets managed by the QFII etc); and

(3) any other materials required by the State Administration of Foreign Exchange.

The State Administration of Foreign Exchange shall announce QFII investment quota information on the government website (www.safe.gov.cn) on a regular basis.

Article 9 An application for increase of investment quota by a QFII which has obtained investment quota prior to the promulgation of these Provisions shall be handled in accordance with the following procedures:   

(1) where the investment quota obtained does not exceed the basic quota: where the sum of the investment quota obtained and the proposed increase in investment quota does not exceed the basic quota, filing formalities shall be completed pursuant to the requirements of Article 7 of these Provisions; where the sum of the investment quota obtained and the proposed increase in investment quota exceeds the basic quota, approval of the State Administration of Foreign Exchange shall be obtained pursuant to the requirements of Article 8 of these Provisions;

(2) where the investment quota obtained exceeds the basic quota, approval of the State Administration of Foreign Exchange shall be obtained pursuant to the requirements of Article 8 of these Provisions.

Article 8 Qualified investors shall make inward remittance of the principal sum of investment within six months from the date of approval of each application for investment quota, and shall not make inward remittance after the stipulated deadline without approval. Where a qualified investor does not make inward remittance of the full amount of the principal sum within the stipulated period but the remitted amount exceeds the equivalent of US$20 million, the actual remitted amount shall be deemed as its investment quota.   

Where the principal sum remitted by a qualified investor is not in US dollar, the remitted investment quota in US dollar shall be computed with reference to the conversion rate table of various currencies to US dollar announced by the State Administration of Foreign Exchange for the current month.

Article 10 The State Administration of Foreign Exchange implements balance administration for QFII investment quota, i.e. the cumulative net inward remittance of a QFII shall not exceed the filed and approved investment quota.   

Where the currency of the inward remittance of a QFII is not US dollar, the US dollar equivalent value of the QFII's inward remittance shall be computed with reference to the conversion table for various currencies against US dollar published by the State Administration of Foreign Exchange in the month of the inward remittance.

Article 9 The investment principal sum lock-in period of qualified investors such as pension funds, insurance funds, mutual funds, charity funds, endowment funds, government and monetary authorities, etc, and Chinese open-end funds established by qualified investors shall be three months; the investment principal sum lock-in period of other qualified investors shall be one year.   

The investment principal sum lock-in period of qualified investors shall commence from the date of inward remittance of the full amount of the principal sum; where the full amount of the principal sum is not remitted within the stipulated period, the lock-in period shall commence after six months from the date of approval of the investment quota.

The aforesaid "Chinese open-end fund" shall mean an open-end securities investment fund established overseas in the form of public offering and for which 70% or more of the fund's assets are invested in China. The original copy of the fund's prospectus and the Chinese translation of the core contents thereof shall be filed with the State Administration of Foreign Exchange for record within 20 working days from establishment of the Chinese open-end fund by the qualified investor.

The aforesaid "investment principal sum lock-in period" shall mean the period for which outward remittance of the investment principal sum by the qualified investor is prohibited.

Article 11 The investment principal lock-in period of a QFII shall be three months.   

The principal lock-in period shall commence on the date on which the QFII's cumulative inward remittance attains the equivalent value of US$20 million.

The aforesaid principal lock-in period shall mean the period for which the QFII is prohibited from remitting the investment principal out of China.

Article 12 QFIIs shall not sell or transfer investment quota to any other organisation or individual in any form.   

Where the investment quota of a QFII is not effectively utilised within one year from the date of filing or approval, the State Administration of Foreign Exchange shall have the right to take back all or part of the unused investment quota.