Provisions on the Administration of Foreign Exchange in Domestic Securities Investments of Qualified Foreign Institutional Investors

Chapter I General Provisions

Article 1 Pursuant to the Regulations on the Foreign Exchange Administration of the People’s Republic of China and the Measures for the Administration of Domestic Securities Investment by Qualified Foreign Institutional Investors (Order No. 36 of 2006 of the China Securities Regulatory Commission, the People’s Bank of China and the State Administration of Foreign Exchange),  the Provisions is enacted to regulate the administration of foreign exchange of the qualified foreign institutional investors (hereinafter referred to as QFIIs) in the domestic securities market of China.

Article 2 A QFII shall entrust its domestic custodian (hereinafter referred to as custodian) to go through all the procedures stipulated in the Provisions on its behalf.

Article 3 A QFII and its custodian shall comply with relevant regulations and rules on foreign exchange administration in China.

Article 4 The State Administration of Foreign Exchange, its branches and foreign exchange administration departments (hereinafter referred to as the SAFE) shall implement according to law supervision, administration and inspection on quota, fund accounts, payment and exchange of domestic securities investment by QFIIs.

Chapter II Administration of Investment Quota

Article 5 The state implements the administration of quota on domestic securities investments by QFIIs. The SAFE shall approve the investment quota of an individual QFII and encourage medium and long-term foreign investment.

Article 6 A QFII, applying for investment quota and opening a foreign exchange account and a special Renminbi account, shall provide the SAFE with the following documents:

(1) A written application of a custodian and a QFII, including the basic condition of the QFII, an explanation of the source of funds and investment plan and a commitment of no repatriation of investment during the approval period, with Registration Form of the State Administration of Foreign Exchange for Qualified Foreign Institutional Investor attached (see appendix I for sample form);

(2) Photocopies of Securities Investment Business Operation License for QFII issued by the China Securities Regulatory Commission (hereinafter referred to as CSRC);

(3) A notarized warrant authorized a QFII to a custodian; and

(4) Other documents required by SAFE

Where a QFII applies for increase of investment quota, it shall, apart from the above documents, supply the Foreign Exchange Registration for QFII (Hereinafter referred to as Foreign Exchange Registration) and an explanation of existing investment quota in China, including assets allocation and alteration, profit and loss on investments, performance of compliance and average turnover rate in stock dealing.

Article 7 The investment quota applied for by a QFII shall be worth no less than USD50m each time, with the accumulative investment quota no more than USD1b. The SAFE may, based on the economic and financial situation, supply and demand of foreign exchange market and the international payment, adjust the aforesaid quota.

A QFII shall not file another application for increase of investment quota within one year after the approval of the previous investment quota.

Article 8 A QFII should remit deposit within 6 months upon the approval of investment quota, and overdue remittance of deposit shall not be allowed without authorization. Where full deposit fails to be remitted in the prescribed time but is worth more than USD20m, the actual remitted deposit shall act as investment quota.

A QFII shall refer to the chart of the conversion rate of currencies to US dollar on the current month of remittance promulgated by SAFE to compute the remitted investment quota equivalent to dollars in value while remitting non-dollar deposit.

Article 9 The lock-in period for deposit for the QFIIs of such types as pension fund, insurance fund, common fund, charity fund, donation fund and government and currency administration and the open-ended Chinese fund established by QFIIs shall be 3 months; and that of deposit for other QFIIs 1 year.

The lock-in period of deposit for a QFII shall be computed as of the date when full deposit is remitted; for that of deposit that fails to be fully remitted in the prescribed time, it shall be computed 6 months as of the date when investment quota is approved.

The aforesaid “open-ended Chinese fund” refers to the open securities investment fund that is initiated and set up overseas in the form of public offering and at least more than 70% of which is invested in China. A QFII should submit the original copy of the fund prospectuses and Chinese translation of its core content to the SAFE for filing.

The above-mentioned “lock-in period of deposit” refers to the period limit beyond which a QFII shall not remit the principal of investment to foreign countries.

Chapter III Administration of the Account

Article 10 A QFII shall, in accordance with the investment quota approved by the SAFE and the reply document of opening account, open a foreign exchange account and a corresponding special RMB account for self-owned fund where a custodian is domiciled or the client fund for which the custodian provides service of assets administration separately.

Where a QFII establishes open-ended Chinese fund, a foreign exchange account and a corresponding special RMB account should be separately opened for each open-ended Chinese fund.

A custodian should go through a filing in the foreign exchange bureau where the custodian is domiciled within 5 working days upon the opening of the QFII foreign exchange account and the special RMB account, submit the official custody agreement to the SAFE and receive the Foreign Exchange Registration for the QFII.

Article 11 The scope of the revenues of a QFII foreign exchange account covers: principal and interest income remitted by the QFII from outside China, the fund transferred from the special RMB account, and other incomes verified by the SAFE; and the scope of the expenditures of a QFII foreign exchange account covers: the fund transferred through settlement of the special RMB account of a QFII, fund expatriated outside China through the original route and other expenditures verified by the SAFE.

The incomes of the special RMB account of a QFII covers: fund remitted through settlement of a QFII foreign exchange account, price of selling securities, cash dividends, interest incomes and other incomes verified by the SAFE; the expenditures thereof covers: the price paid (including stamp tax and commissions) for purchase of prescribed securities products, payment of tax, custody fee, audit fee, management expenses and other relevant expenses, fund remitted into the QFII foreign exchange account for purchasing foreign exchange and other expenditures verified by the SAFE.

Funds in the QFII foreign exchange account and the special RMB account shall merely serve as domestic securities investment in China.

Article 12 The QFII’s self-owned fund account, the client fund account and its open-ended Chinese fund account shall not conduct the transfer of fund from each other, and nor shall open-ended Chinese fund accounts of the same QFII.

Article 13 Deposit interest rate of a QFII foreign exchange account and a special RMB account is subject to the relevant provisions of the People’s Bank of China.

Article 14 A QFII shall liquidate assets and close down the foreign exchange account and the special RMB account where its custodian is domiciled within 1 month and its corresponding investment quota shall be simultaneously invalid in the following situations:

(1)    CSRC has confiscated its securities investment operation license;

(2)    A QFII remits deposits equivalent in value of less than USD20m within 6 months upon the approval of the first investment quota;

(3)    The domestic sum of remaining deposit equivalent in value of less than USD20m for a QFII’s withdrawal of investment;

(4)    The SAFE revokes the original investment quota of a QFII according to the Provisions herein; and

(5)    Other situations as prescribed by the SAFE.

A custodian should conduct a filing to the foreign exchange bureau where it is domiciled within 5 working days upon the closing of a QFII foreign exchange account and a special RMB account and return the Foreign Exchange Registration to the SAFE.

Chapter IV Administration of Remittance and Exchange

Article 15 A QFII may, in accordance with the investment plan and relevant explanation while applying for investment quota, inform the custodian to directly remit the foreign exchange deposit for investment into its special RMB account within 10 working days prior to actual investment.

Where a QFII remits accumulative deposit equivalent in value of less than USD20m, it shall not conduct foreign exchange settlement and investment.

Article 16 A open-ended Chinese fund may, according to the monthly net offset balance of fund purchase and redemption, handle relevant inward and outward remittance monthly upon the end of the lock-in period.

For net fund redemption, the remitted-outward deposit shall be calculated according to the proportion of a QFII deposit and profit and loss of fund on the last trading day of the last month before the outward of remittance confirmed by the custodian, which acts as the quota of another remitted-inward deposit in future.

Where one open-ended Chinese fund has net fund purchase and each remitted-inward amount for settlement equivalent in value is no more than USD50m (including USD50m), the custodian may directly handle related formalities and submit the foreign exchange bureau where the custodian is domiciled for filing; for that equivalent in value of more than USD50m, the custodian shall, within 10 working days ahead of time, hold the photocopies of the Foreign Exchange Registration to file an application to the foreign exchange bureau where the custodian is domiciled, and may handle related formalities after the approval of the bureau.

Where one open-ended Chinese fund has net fund redemption and each remitted-outward amount for purchasing foreign exchange equivalent in value of no more than USD50m (including USD50m), the custodian may directly handle related formalities and submit to the foreign exchange bureau where the custodian is domiciled; for that equivalent in value of more than USD50m, the custodian shall, within 10 days ahead of time, hold the written application, the photocopies of the Foreign Exchange Registration and the explanation related to investment profit and loss to handle relevant formalities after the approval of the foreign exchange bureau where the custodian is domiciled.

Article 17 Apart from the open-ended Chinese fund, other QFIIs, if it is necessary to remit deposit outward for purchasing foreign exchange after the expiration of the lock-in period of deposit, should file an application to the SAFE with the following materials:

(1)    A written application;

(2)    The original copy of Foreign Exchange Registration;

(3)    Explanation related to deposit of inward of remittance and the condition of previous investment; and

(4)    Other materials required by the SAFE.

The SAFE issues the reply document and accordingly adjust to reduce the investment quota of a QFII after examination and approval. The custodian handles the formalities of purchasing foreign exchange and the outward of remittance based on the reply document of the SAFE.

Article 18 Apart from the open-ended Chinese fund, other QFIIs, if it is necessary to purchase foreign exchange to remit the realized accumulative incomes, should first acquire the special auditor’s report issued by the Chinese Certified Public Accountant and entrust the custodian to file an application to the foreign exchange bureau where the custodian is domiciled with the following materials:

(1)    A written application and relevant certification documents of profits of outward of remittance;

(2)    The original copy of the Foreign Exchange Registration;

(3)    The special auditor’s report on the return to investment issued by the Chinese Certified Public Accountant;

(4)    Tax payment certificate for incomes; and

(5)    Other materials required by the SAFE.

The custodian may handle the formalities of purchasing foreign exchange and outward of remittance for the QFII based on the reply document issued by the foreign exchange bureau where the custodian is domiciled after examination and approval.

Article 19 The custodian shall accurately and timely record the fund remittance and payment of a QFII in the Foreign Exchange Registration.

Article 20 The SAFE may, in accordance with Chinese economic and financial situation, supply and demand of foreign exchange market and the international payment, adjust the time of fund outward of remittance, amount and the period limit of a QFII.

Chapter V Statistics and Supervision

Article 21 A QFII should go through the formalities of the foreign exchange registration alteration and submit a written report in and to the SAFE within 5 working days in the following situations:

(1) The alteration of such basic condition as title, responsible person, major shareholder or actual controller of a QFII;

(2) A QFII or its major shareholder and actual controller is severely punished by other supervision authorities (including overseas ones), which may cause significant impacts on investment operation of the QFII or its relevant business qualification is suspended or revoked;

(3) Alteration of the custodian or domestic entrusted investment agency (agent) or alteration of its relevant material information;

(4) Alteration of account title and information of opening bank;

(5) Alteration of open-ended Chinese fund prospectus; and

(6) Other conditions required by the SAFE.

Where a QFII changes a custodian, the new one should also provide the newly-signed custody agreement draft, the basic condition of the new custodian and relevant content of assets custody, and the new notarized and authorized letter, and submit the official custody agreement within 5 working days as of the date when a foreign exchange account and a special RMB account are opened.

Article 22 The custodian shall timely and accurately submit the relevant report forms of a QFII fund remittance and domestic securities investment in accordance with the following provisions:

(1)    Fill in the Detailed Form for QFII Funds Remittance (see Appendix II for sample form) within 2 working days after funds remittance or settlement and purchase of foreign exchange by a QFII;

(2)    Report and submit the Monthly Reform Form 1 and 2 of Domestic Securities Investment of QFIIs (see Appendix III for sample form) within 8 working days monthly; and

(3)    Report and submit the last year’s Annual Finance Reform Form 1 and 2 of Domestic Securities Investment of QFIIs (see Appendix IV for sample form) audited by the Chinese Certified Public Accountant within 3 months after a accounting year is over.

Article 23 A QFII shall be punished by the SAFE in accordance with the Regulations on Foreign Exchange Administration of the People’s Republic of China and may be adjusted to reduce the investment quota until the quota is revoked in the following situations:

(1)    Illegally utilize foreign exchange by transferring or reselling investment quota;

(2)    Provide false information or materials for a custodian or the SAFE;

(3)    Handle settlement of payment or purchase of foreign exchange not according to the provisions herein;

(4)    Provide the relevant information or materials of fund remittance and domestic securities investment not according to the requirements of the SAFE; and

(5)    Other acts in violation of the administration of foreign exchange.

Article 24 The custodian shall be published by the SAFE according to the Regulations on Foreign Exchange Administration of the People’s Republic of China; if the situation is serious, the SAFE will revoke the qualification of a QFII with CSRC in the following conditions:

(1)    Investment quota exceeding that approved by the SAFE or handling deposit inward of remittance for a QFII beyond the time limit;

(2)    Handling the formalities of deposit and profit outward of remittance for a QFII not according to the Provisions herein;

(3)    Opening or closing a foreign exchange account and a special RMB account for a QFII not according to the Provisions herein or handling the formalities of funds remittance and transfer not according to the prescribed scale of account balance;

(4)    Submitting the report form and relevant documents to the SAFE or reporting relevant situations to the SAFE not according to the Provisions herein;

(5)    Conducting statistics declaration of the international payment not according to the Provisions herein; and

(6)    Other acts in violation of the Provisions on Administration of Fore, ign Exchange.

Chapter VI Supplementary Provisions

Article 25 The materials submitted to the SAFE according to the Provisions shall be in Chinese. In case foreign language and Chinese translation are available, the Chinese version shall prevail.

Article 26 The SAFE shall be responsible for interpreting the Provisions.

Article 27 The Provisions shall come into effect as of the date of its promulgation. The Interim Measures on the Administration of Foreign Exchange of Domestic Securities Investments by Qualified Foreign Institutional Investors (Announcement No. 2 of 2002 of the SAFE) and the Circular of the General Department of the State Administration of Foreign Exchange on Operation of Administration on QFII Foreign Exchange (Hui Zong Fa [2003] No. 124) shall be repealed simultaneously.

Appendix I: Registration Form of the State Administration of Foreign Exchange for Qualified Foreign Institutional Investor (omitted)

Appendix II: Detailed Form for QFII Funds Remittance (omitted)

Appendix III: Monthly Reform Form 1 of Domestic Securities Investment of QFIIs and Monthly Reform Form 2 of Domestic Securities Investment of QFIIs (omitted)