Provisions on Foreign Exchange Control in Connection with Securities Investments in China by Qualified Foreign Institutional Investors (Revised)

Article 2: A QFII shall entrust its domestic custodian (Custodian) to carry out on its behalf the relevant procedures required by these Provisions.

Article 3: QFIIs and Custodians shall comply with relevant Chinese provisions on foreign exchange control.

Article 4: The State Administration of Foreign Exchange, its branches and offices (SAFE Bureaux) shall effect in accordance with the law the monitoring, administration and inspection of the investment limits, fund accounts, fund receipt, payment and conversion relating to securities investments in China by QFIIs.

Part Two: Administration of investment limits

Article 5: The state imposes limits on securities investments in China by QFIIs. The State Administration of Foreign Exchange shall be responsible for approving the investment limits of individual QFIIs, so as to encourage medium- and long-term investment.

Article 6: When a QFII applies for an investment limit, and opening of a foreign exchange account and a special renminbi account, it shall submit the following materials to the State Administration of Foreign Exchange:

(1) an application letter submitted by the Custodian and QFII, containing the QFII's basic particulars, an account of the source of the funds, the investment plan, an undertaking by the QFII that it will not withdraw its funds during the lockup period, etc., accompanied by a Form of the State Administration of Foreign Exchange for the Registration of a Qualified Foreign Institutional Investor (for details, see Appendix 1);

(2) a photocopy of the Securities Investment Business Permit of a Qualified Foreign Institutional Investor issued by the China Securities Regulatory Commission (CSRC);

(3) a notarised power of attorney from the QFII authorising the Custodian; and

(4) other materials as required by the State Administration of Foreign Exchange.

When a QFII applies to increase its investment limit, it shall, in addition to the materials specified in Items (1) and (4) above, provide its Foreign Exchange Registration Certificate of a Qualified Foreign Institutional Investor (Forex Registration Certificate) and an account of the investments in China for which it already has an investment limit, which shall include details of its asset allocation and changes therein, its investment gains and losses and its performance in legal compliance, the average turnover rate of its stock trading, etc.

Article 7: The investment limit for which a QFII applies may not be less than the equivalent of US$50 million each time and, in the aggregate, may not be more than the equivalent of US$1 billion. The State Administration of Foreign Exchange may revise the aforementioned limits in line with the economic and financial situation, supply and demand in the foreign exchange market, the balance of payments, etc.

The investment limit of organisations such as sovereign wealth funds, central banks and monetary authorities may exceed the equivalent of US$1 billion.

A QFII may not apply for an increase in its investment limit again for one year after its previous investment limit is approved.

Article 8: A QFII shall inwardly remit the investment principal within six months from the date each investment limit is approved, and if it fails to meet such deadline without approval, it may not inwardly remit such funds. If it fails to inwardly remit the funds in full by the prescribed deadline, but the amount thereof exceeds the equivalent of US$20 million, the amount actually inwardly remitted shall serve as its investment limit.

If the principal inwardly remitted by a QFII is in a currency other than US dollars, the US dollar equivalent of the investment limit shall be calculated with reference to the foreign currency to US dollar conversion rate table posted by the State Administration of Foreign Exchange for the month in question.

Article 9: The lockup period for the investment principal of pension fund, insurance fund, mutual fund, charitable foundation, endowment fund, government, monetary authority-type QFIIs, etc. as well as open-ended China funds promoted and established by QFIIs shall be three months, and that for other QFIIs shall be one year.

The lockup period for the investment principal of QFIIs shall begin to count from the date on which the principal is fully inwardly remitted. If the principal is not fully remitted by the prescribed deadline, the lockup period shall begin to count after the lapse of six months from the date on which approval of the investment limit was granted.

For the purposes of the foregoing, the term “open-ended China fund” means an open-ended securities investment fund promoted and established abroad by way of a public offering and at least 70% of the fund assets of which are invested in China. Within 20 working days after it promotes and establishes an open-ended China fund, a QFII shall submit the original of the fund prospectus and a Chinese translation of the core contents to the State Administration of Foreign Exchange for the record.

For the purposes of the foregoing, the term “lockup period for investment principal” means the period during which a QFII is prohibited from remitting the investment principal out of China.

Part Three: Account administration

Article 10: A QFII may, on the strength of the official reply document from the State Administration of Foreign Exchange on the investment limit and account opening, open with its Custodian one foreign exchange account each for its own funds and the funds of the customers to which it provides asset management services.

If a QFII establishes open-ended China funds, it shall separately open one foreign exchange account for each open-ended China fund.

A QFII shall, on the strength of the official reply concerning its investment limit from the State Administration of Foreign Exchange and in accordance with relevant provisions on the administration of the domestic renminbi settlement accounts of foreign organisations, open with its custodian bank or another commercial bank in China a renminbi dedicated deposit account corresponding to its foreign exchange account. (See Appendix 2: Operational Guidelines for the Administration of the Domestic Accounts of Qualified Foreign Institutional Investors (Trial Implementation) for details on the opening and use of renminbi accounts.)

The Custodian shall, within five working days after the QFII opens a foreign exchange account and renminbi dedicated deposit account, report the same to the SAFE Bureau of the place where it is located for the record, submit the formal custodian agreement to the State Administration of Foreign Exchange and collect the Forex Registration Certificate on behalf of the QFII.

Article 11: The scope of the receipts of a QFII's foreign exchange account shall be the principal remitted from abroad by the QFII, interest income, funds transferred into the account from the QFII's special renminbi account or renminbi dedicated deposit account (Renminbi Account) after the purchase of foreign exchange and other receipts approved by the State Administration of Foreign Exchange; and the scope of expenditures shall be funds converted into renminbi and transferred into the QFII's Renminbi Account, funds remitted back abroad by the original route and other expenditures approved by the State Administration of Foreign Exchange.

The funds in a QFII's foreign exchange account and Renminbi Account may not be used for purposes other than securities investment in China.

Article 12: Funds may not be transferred among a QFII's account for its own funds, account for customers' funds and account for its open-ended China fund. Funds also may not be transferred among the accounts of a QFII's various open-ended China funds.

Article 13: The deposit interest rates for the foreign exchange accounts and Renminbi Accounts of QFIIs shall be handled with reference to relevant provisions of the People's Bank of China.

Article 14: If any of the following circumstances apply to a QFII, it shall convert the assets into cash and close its foreign exchange account and Renminbi Account within one month, and its corresponding investment limit shall become null and void simultaneously:

(1) the CSRC has taken back its securities investment business permit;

(2) the investment funds inwardly remitted within the six months after the approval of its first investment limit are less than the equivalent of US$20 million;

(3) it withdraws investments from China, causing the total of the principal remaining in China to fall below the equivalent of US$20 million;

(4) the State Administration of Foreign Exchange cancels its existing investment limit in accordance herewith; or

(5) another circumstance as specified by the State Administration of Foreign Exchange arises.

The Custodian shall, within five working days after the closing of the QFII's foreign exchange account and Renminbi Account, report the same to the SAFE Bureau of the place where it is located for the record and return the Forex Registration Certificate to the State Administration of Foreign Exchange.

Part Four: Conversion control

Article 15: Within 10 working days before actually making an investment, a QFII may, based on the investment plan and relevant explanation provided at the time of the application for its investment limit, notify the Custodian to directly convert the foreign exchange funds required for the investment into renminbi and transfer them into its Renminbi Account.

If the aggregate of the investment principal inwardly remitted by a QFII is less than the equivalent of US$20 million, it may not convert the same into renminbi and invest the same.

Article 16: Once the lockup period for its investment principal has expired, a QFII may outwardly remit its principal and the returns thereon in instalments and in batches. The total funds (principal and returns) that a QFII may outwardly remit each month may not exceed 20% of its total domestic assets as at the end of the previous year.

Article 17: An open-ended China fund may, based on the net amount after netting of its purchases and redemptions, have its custodian bank carry out relevant fund inward or outward remittance procedures on a weekly basis. The aggregate net amount of funds outwardly remitted each month may not exceed 20% of the fund's total domestic assets as at the end of the previous year.

If net redemptions arise, the amount of the principal outwardly remitted shall be calculated based on the ratio of the QFII's investment principal to losses/gains on the last trading day of the month preceding the outward remittance as confirmed by the Custodian, and such amount shall serve as the limit of the investment funds that may be inwardly remitted again in future.

Article 18: If a QFII, other than an open-ended China fund, needs to outwardly remit principal, it shall apply to the State Administration of Foreign Exchange on the strength of a written application (including an account of the inward remittance of the principal and details of the past investments), the original of the Forex Registration Certificate, etc. After reviewing the same and giving its consent, the State Administration of Foreign Exchange will issue an official reply document and reduce the QFII's investment limit accordingly. The Custodian shall carry out the relevant outward fund remittance procedures for the QFII on the strength of the official reply document from the State Administration of Foreign Exchange.

If a QFII, other than an open-ended China fund, needs to outwardly remit the aggregate returns it has realised, its Custodian may carry out on its behalf the relevant outward fund remittance procedures on the strength of the QFII's written application or instruction, the dedicated audit report on investment returns issued by a China certified public accountant, tax payment receipt, etc.

Article 19: The Custodian shall accurately record on the Forex Registration Certificate details of the QFII's conversion of funds and receipts and payments in a timely manner.

Article 20: The State Administration of Foreign Exchange may revise the times for the outward remittance of funds by QFIIs, the amount thereof and the deadline for the outward remittance of funds in line with China's economic and financial situation, supply and demand in the foreign exchange market and the balance of payments.

Part Five: Statistics and oversight

Article 21: A QFII shall, within five working days, carry out the procedures for the amendment of its Forex Registration Certificate with, and submit a written report to, the State Administration of Foreign Exchange if:

(1) there is a change in its basic particulars such as its name, person in charge, main shareholders or de facto controller;

(2) it, a main shareholder or its de facto controller has a major penalty imposed by another regulator (including foreign regulators) such that such penalty will have a material impact on the QFII's investment operation or result in its qualifications for the relevant business being suspended or revoked;

(3) there is a change in its Custodian or domestic appointed investment firm (brokerage), or there is a change in relevant material particulars thereof;

(4) there is a change in its account name, bank particulars, etc.

(5) there is a change in the open-ended China fund's prospectus; or

(6) another circumstance as specified by the State Administration of Foreign Exchange arises.

If a QFII replaces its Custodian, the new Custodian shall additionally provide a draft of the newly executed custodian agreement, its basic particulars, an account of relevant details of its asset custody business and the new notarised power of attorney and, within five working days from the date of opening of the foreign exchange account and Renminbi Account, it shall submit the formal custodian agreement.

Article 22: A Custodian shall submit relevant accurate statements of a QFII's fund conversions and securities investments in China in accordance with the following provisions in a timely manner:

(1) within two working days after the QFII outwardly or inwardly remits funds, or converts or purchases foreign exchange, it shall complete and submit a Detailed Form for the Outward and Inward Remittance of Funds by a Qualified Foreign Institutional Investor (for details, see Appendix 3);

(2) within five working days after the end of each month, it shall submit Monthly Statements for the Domestic Securities Investments of a Qualified Foreign Institutional Investor (1) and (2) (for details, see Appendix 4);

(3) within three months after the end of each financial year, it shall submit Annual Financial Statements for the Domestic Securities Investments of a Qualified Foreign Institutional Investor (1) and (2) (for details, see Appendix 5) for the previous year audited by a China certified public accountant.

Article 23: The SAFE Bureau shall impose penalties in accordance with relevant provisions of the PRC Regulations for the Control of Foreign Exchange and reduce or cancel its investment limit if a QFII:

(1) commits an illegal act of using foreign exchange, such as transferring or selling its investment limit;

(2) provides false information or materials to the Custodian or the SAFE Bureau;

(3) fails to carry out investment-related conversion, purchase or payment of foreign exchange in accordance with provisions;

(4) fails to provide relevant information or materials on its fund conversion or securities investments in China as requested by the SAFE Bureau; or

(5) otherwise violates foreign exchange control provisions.

Article 24: If a Custodian commits any of the acts set forth below, the SAFE Bureau shall impose penalties in accordance with relevant provisions of the PRC Regulations for the Control of Foreign Exchange and, if the circumstances are serious, will, together with the CSRC, revoke its qualifications to act as a Custodian for QFIIs:

(1) it exceeds the investment limit approved by the State Administration of Foreign Exchange or fails to carry out inward remittance of the principal for a QFII on time;

(2) it fails to carry out for a QFII the procedures for the outward remittance of the principal or returns in accordance with provisions;

(3) it fails to open or close a foreign exchange account or Renminbi Account for a QFII in accordance with provisions, or fails to carry out for a QFII fund conversion or transfer procedures in accordance with the specified scope of receipts or expenditures of the accounts;

(4) it fails to submit statements and relevant information to the SAFE Bureau in accordance with provisions, or fails to report relevant circumstances to the SAFE Bureau in accordance with provisions;

(5) it fails to file international balance of payments statistics in accordance with provisions; or

(6) it otherwise violates foreign exchange control provisions.

Part Six: Supplementary provisions

Article 25: The materials submitted to the SAFE Bureau pursuant hereto shall be in Chinese. Where both a foreign language version and a Chinese translation are submitted, the Chinese version shall prevail.

Article 26: The State Administration of Foreign Exchange is in charge of interpreting these Provisions.

Article 27: These Provisions shall be effective as of the date of promulgation. The Tentative Provisions on Foreign Exchange Control in Connection with Securities Investments in China by Qualified Foreign Institutional Investors (Announcement of the State Administration of Foreign Exchange No.2 of 2002) and the General Affairs Department of the State Administration of Foreign Exchange, Circular on Operational Issues Relevant to Foreign Exchange Control in Respect of QFIIs (Hui Zong Fa [2003] No.124) shall be repealed simultaneously.

Appendix 1:

Form of the State Administration of Foreign Exchange for the Registration of a Qualified Foreign Institutional Investor

Appendix 2:

Operational Guidelines for the Administration of the Domestic Accounts of Qualified Foreign Institutional Investors (Trial Implementation)

Appendix 3:

Detailed Form for the Outward and Inward Remittance of Funds by a Qualified Foreign Institutional Investor

Appendix 4:

Monthly Statement for the Domestic Securities Investments of a Qualified Foreign Institutional Investor (1)

Monthly Statement for the Domestic Securities Investments of a Qualified Foreign Institutional Investor (2)

Appendix 5:

Annual Financial Statement for the Domestic Securities Investments of a Qualified Foreign Institutional Investor for the Year ___ (1)

Annual Financial Statement for the Domestic Securities Investments of a Qualified Foreign Institutional Investor for the Year ___ (2)