On June 13, CSRC Chairman Yi Huiman announced 9 policies and measures aiming at further opening up China’s capital markets at the Lujiazui Forum. The heads of relevant CSRC departments took questions from reporters in this regard.
I. What is the background of introducing the 9 opening-up policies and measures?
The 9 opening-up policies and measures represent the concrete actions taken by the CSRC to follow through with the directive of the CPC Central Committee and the State Council to accelerate opening-up of the financial sector. Since President Xi Jinping reaffirmed China’s commitment to expanding opening up at the 2018 Boao Forum, the CSRC took the initiative and introduced a slew of measures to expand foreign access to China’s capital markets, including uplifting foreign shareholding limits in foreign-invested securities companies, fund management companies, and futures company and offering national treatment in terms of scope of business, increasing daily quota under the Mainland-Hong Kong Stock Connect schemes, and making headways in preparation for the Shanghai-London Stock Connect, all of which were highly commended by the international community. Reform and opening-up is the tested way to develop China’s capital markets in the New Era and will be the wellspring of momentum driving common prosperity in the global capital market. Through thorough studies and extensive consultations, the CSRC will progressively implement the 9 opening-up policies and measures to ease the way for long-term foreign capital coming into China’s capital markets and encourage well-established foreign financial institutions to set onshore presences, so as to nurture a pro-competition environment and improve service quality in the market. With increased foreign participation, we will join hands to build the capital markets featured by compliance, transparency, openness, vitality, and resilience to support high-quality economic growth and meet people’s demands for high-quality financial service.
II. What are the 9 opening-up policies and measures?
1. Revising the QFII/RQFII rules to facilitate foreign participation in China’s capital markets
Currently, the CSRC is revising the QFII/RQFII rules to align access requirements for QFII and RQFII and expand scope of investment, easing market access for foreign institutions to invest and operate in China under commensurate regulatory arrangement. The new rules have completed public consultation and will be released after being approved in due process.
2. Allowing foreign shareholders of foreign-invested securities companies and fund management companies to hold “minority shareholder in one and controlling shareholder in another” under the principle of unified requirements for domestic and foreign investments.
As part of the system of pre-establishment national treatment with a negative list at the direction of the CPC Central Committee and the State Council, the CSRC further eased restrictions on foreign shareholders of foreign-invested securities companies and fund management companies by allowing them to hold “minority shareholder in one and controlling shareholder in another” under the principle of unified requirements for domestic and foreign investments. Under the new framework, one foreign shareholder can own equities of no more than two securities companies (or fund management companies), of which in no more than one company as the controlling shareholder.
3. Setting appropriate net assets requirements for the controlling shareholder of a foreign-controlled comprehensive securities company under the principle of unified requirements for domestic and foreign investments.
In the public consultation for Provisions for the Administration of Equity Ownership in Securities Companies between March 30 and April 29, 2018, the industry representatives extensively commented on the requirements of “net assets of no less than RMB100 billion and an aggregate 3-year revenue from core businesses of no less than RMB100 billion” for controlling shareholder(s) of securities companies with comprehensive business profile. By treating domestic and foreign shareholders equally, the CSRC closely examined the feedback received and adjusted requirements of net assets in a measured way and benchmarked against different risks posted by securities firms of comprehensive or more specialized business profiles. The new rules will be released after being approved in due process.
4. Relaxing requirements for foreign banks to undertake custodian business for securities investment funds with due regard to the assets size and business expertise of the foreign banks’ parent companies.
Currently, if a foreign bank intends to apply for a custodian license for securities investment fund, it shall possess qualifications as a clearing participant, which is difficult for many foreign banks due to the high threshold on net assets to become a clearing participant regardless of credit standing and business expertise of their parent companies. In order to enrich the diversity of service providers for custodian business, the CSRC has made necessary changes to the existing rules for foreign banks to undertake custodian business for securities investment fund. Well-established foreign banks can now apply for custodian license with clearing functions separately assigned to another qualified institution. So far, the CSRC has permitted Standard Charter custodian business for securities investment fund and will allow other eligible foreign banks to apply for the business.
5. Extending the program of H-share full circulation on a wider scale to energize corporate development.
In order to make the non-tradable shares of overseas listed companies available for trading on the offshore market, the CSRC launched the pilot program of H-share full circulation in 2018 with approval from the State Council. The non-tradable shares include the remaining shares held by domestic shareholders prior to the offshore listing, domestic shares offered after the offshore listing, and the unlisted foreign shares transferred from domestic shareholders to foreign shareholders. In the pilot program, the 27 shareholders of AviChina, Legend Holdings, and Wego Group were among the first approved to convert a combined 7.1 billion non-tradable shares into floating H-shares on the Stock Exchange of Hong Kong. The success of the pilot program offered useful experience for extending the program on a wider scale.
Currently, the CSRC is collaborating with relevant authorities to prepare for a full roll-out of the H-share full circulation program according to the working plan approved by the State Council. Rule books and guidelines will be released soon to assist companies and shareholders in the efforts to achieve full circulation of H-shares.
6. Expanding the list of designated futures contracts for foreign investors to further open up the futures market.
In 2018, futures contracts on crude oil, iron ore, and PTA were successively opened to foreign investors as designated products. The market had been sound in accommodating foreign tradings and started to display preliminary effects in price discovery. More than one year since the listing of crude oil futures, trading and open position of foreign investors accounted for 10% and 16% of market total, respectively. The opening of iron ore and PTA futures to foreign investors further strengthened the contracts’ international relevance. As the futures market gradually opened up, such market regimes as trading, settlement, and risk management have withstood tests and scrutiny, laying a solid foundation to reach a new level of openness.
The CSRC is making preparations to expand the list of designated commodities futures and options contracts for foreign investors concurrently with improvements to market framework and regimes, so as to accentuate China’s presence on global commodity markets and to provide effective price discovery and efficient risk management tools for China’s multinational enterprises.
7. Relaxing restrictions for privately-offered investment products managed by foreign-owned private securities investment fund managers (PFMs) to engage in the southbound trading of the Mainland-Hong Kong Stock Connect.
In June 2016, the CSRC released rules related to the establishment of private securities investment fund managers (PFMs) with over 49% foreign capital (foreign-owned PFMs) and registration requirements at the Asset Management Association of China (AMAC). At present, there are 19 foreign-owned PFMs registered at AMAC, including FIL Investment Management, UBS Asset Management, Man, Schroders, and Bridgewater, which have filed 38 fund products with a total AUM of RMB5.2 billion. So far, the foreign-owned PFMs as a whole are operating smoothly.
In building a pro-business environment for foreign investors as the financial market strives for a new level of openness, the CSRC will uphold the principle of unified requirements for domestic and foreign investments by allowing foreign-owned PFMs to invest in the Hong Kong stock market through southbound trading under the Mainland-Hong Kong Stock Connect, and mandating AMAC to offer national treatments to foreign-owned PFMs who have filed fund products that invest in eligible securities under the southbound trading through the trading links with Hong Kong.
8. Diversifying the investment channels for foreign institutions into the exchange-traded bond market and expand market access.
In recent years, the inter-bank bond market has made positive progresses in attracting foreign institutional investors through diversified investment channels and streamlined access requirements. Following in the footsteps of the inter-bank bond market, the CSRC is looking into feasible and practical ways to enhance accessibility of the exchange-traded bond market to foreign institutional investors, so as to optimize investor structure and multiply sources of funding.
Moving forward, the CSRC will work closely with relevant authorities to ascertain rules and roadmap for foreign institutional investors to participate in the exchange-traded bond market.
9. Drafting the measures to administer Panda Bond on the exchange-traded bond market and facilitate issuance of Panda Bond by foreign institutions.
In December 2015, the pilot program of Panda Bond was launched on the exchange-traded bond market. By the end of May, 2019, the total issuance of Panda Bond reached RMB123.6 billion by 24 issuers on the exchange-traded bond market. Panda Bond, which facilitates fund-raising by foreign institutions in the domestic market, is an addition to the investable bond products, a catalyst to RMB internationalization, and a vehicle to support the Belt and Road Initiative.
Moving forward, the CSRC will work with relevant authorities on drafting the Provisional Measures for the Administration of Foreign Institutional Bond Issuers in the Exchange-traded Bond Market, targetedly addressing issues relating to the criteria of eligible issuers and applicability of accounting standards, etc., to safeguard the soundness of the Panda Bond regime in the exchange-traded bond market.
III. How will the 9 opening-up policies and measures implemented?
The CSRC will press ahead with rule-making and standard-setting efforts jointly with relevant authorities to ensure smooth implementation of the above 9 opening-up policies and measures, engage in regular communications with foreign financial institutions and institutional investors to solicit feedback and policy consultations, and deepen regulatory cooperation with foreign regulators. In the meantime, the CSRC will conduct continuous policy evaluation alongside evolving mechanisms of market surveillance, early warning, and contingency planning. With strong footings in prudential regulation and risk prevention, the CSRC aims to secure financial stability and sustain sound and steady development of the capital markets.
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