February 15, 2006 - Hong Kong

China: Proposed Amendments on QFII

The China Securities Regulatory Commission (“CSRC”) and State Administration of Foreign Exchange (“SAFE”) have, in recent months, issued consultation drafts of proposed amendments to the two major regulations governing Qualified Foreign Institutional Investors (“QFIIs”): and . According to the draft regulations, certain amendments are to be implemented. Under the existing regulations, QFIIs are subject to relatively long investment lock-up periods. Under the proposed amendments, the lock-up period may be reduced from one year to three months for open-ended funds, insurance companies, pension funds, charitable funds and closed-end funds, and from three years to one year for other types of QFIIs. CSRC has also proposed to depart from the existing requirement for QFII to operate on a single account basis. Draft regulations are being introduced to allow a QFII to hold multiple sub-custody accounts and multiple securities brokerage accounts. This will allow segregation of assets between the multiple sub-custody accounts and permit a wider selection of brokers. Finally, the proposed investment quota for individual QFII which can be applied for is expected to increase from USD $800 million to USD $1 billion in RMB. The proposed amendments to the two main regulations reflect the Chinese government’s on-going commitment to attract foreign investors. The existing QFII rules and requirements are rather inappropriate for open-ended funds. However, the changes proposed under the draft regulations are expected to be more attractive for open-ended funds.