On June 20, 2012, the China Securities Regulatory Commission (CSRC) announced that it had started public consultation on a series of proposed rule changes that will lower some of the thresholds and otherwise relax some conditions for non-Chinese investors to obtain a license to be a qualified foreign institutional investor (“QFII”).[1] Under Chinese securities regulations and capital controls, non-Chinese firms and persons cannot invest directly in the Chinese securities markets – most notably the primary equity markets, those for China A Shares in Shanghai and Shenzhen – unless they have a QFII license. A QFII also must obtain a quota to purchase Renminbi from the State Administration of Foreign Exchange (SAFE) before it can invest in Chinese securities. The application process to obtain the license and quota is lengthy, detailed and involved, and the CSRC and SAFE administer the process in accordance with the policy objectives of the Chinese government. The proposed rules appear to be a manifestation of recent moves by the Chinese regulators to attract more foreign capital to the Chinese securities markets.

The proposed changes have completed the public consultation stage, and if they are adopted, several aspects of the QFII rules would be affected. These are summarized below:

First, the CSRC proposed lowering two key thresholds for QFII applicants:

- One of the requirements for a QFII applicant is that it must have five years of experience in asset management. The revised rule would lower this requirement from five years to two years. The proposed change would apply to applicants in certain industries, including asset management firms, insurance companies, and pension and sovereign funds.

- The assets-under-management requirement for a QFII applicant is US$5 billion or more. This threshold would be lowered to US$500 million. This proposed change also would apply to asset management firms, insurance companies, and pension and sovereign funds.