China: China Investment Management Update
Offshore Investment of Foreign Currency Assets of Chinese Insurance Companies Following the Provisional Regulatory Measures on Offshore Investment of Foreign Currency Insurance Assets (“Provisional Measures”) issued by the China Insurance Regulatory Commission (“CIRC”) in August 2004 which allow qualifying PRC insurance companies to invest their foreign currency assets (which include proceeds raised through overseas listing) offshore subject to certain limits (please refer to our Client Update on this published in September 2004 and posted on our website: www.deacons.com.hk), the CIRC has issued on 1 September 2005 a set of implementing measures (the “Implementing Measures”) to the Provisional Measures. The Implementing Measures permits qualifying PRC insurance companies to appoint offshore fund managers or onshore managers to manage their foreign currency assets offshore. The Implementing Measures set out the qualifying proceeds for the PRC insurance companies as well as the reporting obligations and responsibilities of the appointed managers. The Implementing Measures clarified and supplemented the application of the requirements under the Provisional Measures. The Implementing Measures set out in details the permitted investment scope for foreign currency insurances funds that may be invested offshore. Of significance, it is provided that up to 10% of the foreign investment quota granted by the State Administration of Foreign Exchange (“SAFE”) may be invested in shares of Chinese companies that are issued offshore and listed in stock exchanges in New York, London, Frankfurt, Tokyo, Singapore or Hong Kong. This will allow PRC insurance companies that invest their foreign currency insurance assets offshore to invest in equity securities, amidst other more conservative type of investments allowed such as deposits with banks of certain minimum rating, mortgage-backed securities which are government guaranteed, money market instruments and bonds of Chinese companies issued offshore that are of certain investment grade. Offshore investment of the PRC insurance companies may be denominated in US dollar, Euro, Japanese Yen, the Pound, Canadian dollar, Swiss Franc, Australian dollar, Singapore dollar or Hong Kong dollar. Some regard the CIRC measures allowing PRC insurance companies to invest overseas as a positive step towards the introduction of a “Qualified Domestic Institutional Investors” (“QDII”) regime in China. The QDII regime has been long talked about as a regime that will formally allow Chinese institutional investors to invest offshore. However, a distinction should be made in that a full QDII regime would allow convertibility of Renminbi assets into foreign freely convertible currencies to be invested offshore, whereas the Provisional Measures as supplemented by the Implementing Measures only allow PRC insurance companies to invest their assets which are already in foreign currencies. QFII Development China has increased the total quota that may be given to qualified foreign institutional investors (“QFII”) from US$4 billion to US$10 billion, under the QFII scheme that was introduced since November 2002 to allow qualifying foreign institutional investors to invest into the mainland securities market. Currently US$4 billion quota was approved and granted to a total of 27 QFIIs, and the maximum quota limit per QFII was US$800 million. There was much lobbying which led to the quota increase, and the SAFE has started accepting and approving applications for quota increase from existing QFIIs. Commercial Banks Wealth Management Business The China Banking Regulatory Commission (“CBRC”) on 30 September 2005 issued the Regulations on Commercial Banks Personal Wealth Management Business and the Guidelines on Risk Management for Commercial Banks Personal Wealth Management Business (together, the “Rules”). The Rules formally regulate personal wealth management services offered by commercial banks in the PRC, including sino-foreign commercial banks and wholly-foreign owned commercial banks. The rules broadly categorise wealth management services provided by commercial banks into (a) wealth management consulting services, under which investments will be made on customers’ instruction and behalf following information and consultation provided by the bank; and (b) wealth management consolidated discretionary investment services, where the bank shall provide discretionary management of customers’ assets. The latter is further divided into private banking services for specific customers and wealth management plans for specific target customers. There are requirements on the types of products that commercial banks may offer under the wealth management services, with specific type of products subject to the prior approval of the CBRC. The Rules also cover information disclosure, qualifications of front-line staff, risk management and reporting requirements to the CBRC.