State Administration of Foreign Exchange, Circular on Foreign Exchange Control Issues Relevant to the Investment on the Interbank Bond Market by Foreign Institutional Investors

Main contents: A foreign institutional investor shall, during the term of validity of the record filing notice issued by the Shanghai Head Office of the People's Bank of China, carry out registration on the State Administration of Foreign Exchange's capital account information system (the System) through its settlement agent (Article 2).

The scope of the revenue in a dedicated foreign exchange account of a foreign institutional investor is as follows: the principal remitted from abroad by the foreign institutional investor, interest income, funds transferred from the foreign institutional investor's dedicated renminbi deposit account (the Renminbi Account) after the purchase of foreign exchange therewith and other revenue approved by the State Administration of Foreign Exchange. The scope of expenditures is as follows: funds transferred into the foreign institutional investor's Renminbi Account after the conversion of foreign exchange, principal and returns remitted abroad and other expenditures approved by the State Administration of Foreign Exchange.

The funds in a foreign institutional investor's dedicated foreign exchange account may not be used for any purpose other than investment on the interbank bond market (Article 3).

The settlement agent shall carry out fund inward and outward remittance and settlement and sale of foreign exchange on behalf of a foreign institutional investor on the strength of the business voucher generated upon registration and the information on the System related control information form. The percentage of the aggregate foreign exchange and renminbi remitted outward by a foreign institutional investor shall remain essentially identical with the percentage of aggregate foreign exchange and renminbi remitted inward by it, with the range not to exceed 10% in either direction. The first outward remittance may be exempted from the aforementioned percentage, provided that the amount of foreign exchange or renminbi remitted outward does not exceed 110% of the aggregate amount of foreign exchange or renminbi remitted inward (Article 4).

Related legislation: People's Bank of China, Announcement [2016] No.3; and Implementing Rules for Administration of the Record Filing of the Investment on the Interbank Bond Market by Foreign Institutional Investors

Promulgated: May 27 2016

Effective: as of date of promulgation

Applicability: For the purposes of this Circular, the term “foreign institutional investor” means various types of financial institutions satisfying the requirements of the People's Bank of China, Announcement [2016] No.3 and lawfully incorporated outside the People's Republic of China, such as a commercial bank, insurance company, securities company, fund management company or other asset management institution, the investment products of the aforementioned financial institutions lawfully and compliantly offered to clients, as well as other medium- and long-term institutional investors recognized by the People's Bank of China, such as retirement funds, charitable foundations and endowment funds (Article 1).

The relevant foreign exchange control provisions in connection with the investment on the interbank bond market by qualified institutional investors (QFIIs) and renminbi qualified institutional investors (RQFIIs) shall still follow the existing foreign exchange control provisions on QFIIs and RQFIIs (Article 8).

Main contents: A foreign institutional investor shall, during the term of validity of the record filing notice issued by the Shanghai Head Office of the People's Bank of China, carry out registration on the State Administration of Foreign Exchange's capital account information system (the System) through its settlement agent (Article 2).

The scope of the revenue in a dedicated foreign exchange account of a foreign institutional investor is as follows: the principal remitted from abroad by the foreign institutional investor, interest income, funds transferred from the foreign institutional investor's dedicated renminbi deposit account (the Renminbi Account) after the purchase of foreign exchange therewith and other revenue approved by the State Administration of Foreign Exchange. The scope of expenditures is as follows: funds transferred into the foreign institutional investor's Renminbi Account after the conversion of foreign exchange, principal and returns remitted abroad and other expenditures approved by the State Administration of Foreign Exchange.

The funds in a foreign institutional investor's dedicated foreign exchange account may not be used for any purpose other than investment on the interbank bond market (Article 3).

The settlement agent shall carry out fund inward and outward remittance and settlement and sale of foreign exchange on behalf of a foreign institutional investor on the strength of the business voucher generated upon registration and the information on the System related control information form. The percentage of the aggregate foreign exchange and renminbi remitted outward by a foreign institutional investor shall remain essentially identical with the percentage of aggregate foreign exchange and renminbi remitted inward by it, with the range not to exceed 10% in either direction. The first outward remittance may be exempted from the aforementioned percentage, provided that the amount of foreign exchange or renminbi remitted outward does not exceed 110% of the aggregate amount of foreign exchange or renminbi remitted inward (Article 4).

Related legislation: People's Bank of China, Announcement [2016] No.3; and Implementing Rules for Administration of the Record Filing of the Investment on the Interbank Bond Market by Foreign Institutional Investors