Qualified Foreign Institutional Investor (QFII)

What Is a Qualified Foreign Institutional Investor (QFII)?

The Qualified Foreign Institutional Investor (QFII) is a program that permits determined licensed international investors to participate in central area China's stock exchanges. The Qualified Foreign Institutional Investor program was presented by the People's Republic of China in 2002 to give foreign institutional investors the right to trade on stock exchanges in Shanghai and Shenzhen. Before the send off of the QFII program, investors from different nations were not permitted to buy or sell stocks on Chinese exchanges due to the country's tight capital controls.

Grasping Qualified Foreign Institutional Investor (QFII)

With the send off of the Qualified Foreign Institutional Investor (QFII) program in 2002, licensed institutional investors were permitted to purchase and sell yuan-designated "A" shares, which are shares of central area China-based companies. Nonetheless, determined quotas obliged foreign access to these shares. The Chinese government utilized these quotas to direct the amount of money that licensed foreign investors could invest in China's capital markets.

The QFII program quota was increased from $30 billion to $80 billion in April 2012, a decade after the program sent off. The quotas are conceded by China's State Administration of Foreign Exchange (SAFE), and the quotas can be changed whenever in response to the country's current economic and financial conditions. With an end goal to draw in more foreign investment, SAFE announced it was killing quota restrictions in Sept. 2019.

The type of investments that can be traded as part of the QFII system incorporates listed stocks (however rejects foreign-situated shares), treasury bonds, corporate debentures, convertible bonds, and other financial instruments as approved by the China Securities Regulatory Commission (CSRC).

As of Sept. 2019, almost 300 overseas institutions had received QFII quotas adding up to generally $111.4 billion.

Qualified Foreign Institutional Investor (QFII) Qualifications

At the point when the CSRC previously sent off the QFII program in 2002, it ordered that certain requirements must be met for investors to be accepted into the program. The CSRC decided these capabilities by the type of institutional investor who applied for a license, for example, a fund management company or insurance business.

For instance, fund management companies needed to have something like five years of asset management experience and somewhere around $5 billion of assets under management during the latest accounting year. A certain amount of foreign currency, moved and switched over completely to neighborhood currency, was likewise mandatory for endorsement.

Starting in 2016, the CSRC started a series of changes to the QFII program determined to draw in more foreign capital. The CSRC started to slacken investor capabilities for the QFFI program. In 2019, the CSRC announced simplified rules that eliminated the assets under management criteria and long periods of experience required by foreign investors.

QFII versus RQFII

In Dec. 2011, the CSRC began the Renminbi Qualified Foreign Institutional Investor (RQFII) program. Like the QFII program, the RQFII program permits foreign investors the opportunity to invest in China's stock exchanges.

There are differences between the RQFII program and the QFII program, the vast majority of which have to do with easing restrictions on investors that made accessing the QFII program troublesome. For instance, QFII program participants must change over their foreign currency into renminbi before investing in Chinese securities. RQFII participants, be that as it may, don't have to change over their currency and can invest directly in China's domestic capital markets.

Special Considerations

Preceding June 2018, foreign institutions invested in China's stock or bond markets through the QFII program could [repatriate](/bringing home) up to 20% of its investments consistently. Likewise, each time a QFII participant looked to move money out of China interestingly, they were kept from doing as such by a three-month "lock-up" restriction. Nonetheless, that has now changed.

As of mid-June 2018, China lifted both the 20% remittance ceiling and the three-month lock-up period for all new and existing QFII participants. As an additional incentive, China permits QFIIs to perform hedging to oversee foreign exchange risks.

These new rules, alongside the lifting of quota restrictions, are viewed as China's endeavors to make trading in their bond and stock markets all the more widely accepted among international investors. In 2019, China's securities regulator announced plans to ultimately join the QFII and RQFII programs as part of its changes to increase foreign investor participation.

Features

• A comparative program to QFII, the Renminbi Qualified Foreign Institutional Investor (RQFII) program forces less restrictions on overseas investors and makes it simpler for direct investment in China's domestic capital markets.
• Sent off in 2002 by the Chinese government, the Qualified Foreign Institutional Investor (QFII) program permits certain licensed international investors the opportunity to invest in China's stock exchanges.
• The QFII program permits foreign institutional investors to buy and sell yuan-named "A" shares of Chinese companies.