Global Trustee and Fiduciary Services News and Views

18 / 72

Markets and Securities Services | Asia 16
Chinese markets generally, and we expect that
industry participants and commentators will be
watching CIBM activity closely to see whether
further relaxations — in CIBM and the other
access schemes — might be on the horizon.
These investors will be able to trade bonds on
CIBM and effect certain hedging transactions
such as bond forwards and interest-rate swaps.
Interestingly, participants must appoint a local
settlement agent prior to commencing trading.
Much of the local compliance burden will settle
on such local agent rather than the investor itself.
Questions and issues
As with the other programmes and opportunities
for investment in China touched on in this article,
there remain a significant number of questions
and issues surrounding investment in CIBM
that offshore financial institutions grapple with.
Examples include the following points.
• How are potential participants who do not fall
within the entities expressly listed in the rules
to classify themselves as PBOC-recognised
“medium- or long-term institutional investors”?
• Where offshore investors enter into derivative
contracts with specific local clearing
requirements, will these requirements apply
to the offshore investor, and, if so, how should
these be navigated and complied with in the
context of requirements that might also apply
in the investor’s home jurisdiction?
• For QFII and RQFII participant investors, how
will the rules applicable to those regimes work
alongside the CIBM requirements?
Final remarks
Each of the access programmes referred to in
this article come with their advantages and
disadvantages and will appeal to different
types of managers for different reasons. What
is unquestionable now is that China truly is a
global powerhouse. Its debt and equity markets
are enormous and present potentially great
opportunities for asset managers to give their
clients access to deep and liquid markets and
companies that in many cases are developing
into global market leaders.
While this is not to say that investing in
Chinese debt and equity markets is without its
challenges, the size of the opportunity certainly
warrants a close and detailed review. For those
that prepare properly and understand the
challenges, risks, and opportunities, there
is the potential to offer exposure to very
interesting investment opportunities.
If the Chinese authorities continue to work
towards liberalising access to China A shares,
the inclusion of those shares in MSCI indices
will require asset managers to address how
they take exposure to China A shares.
Paul Moloney
Of Counsel
Eversheds Hong Kong
1 In this article “China” means mainland China and excludes
Hong Kong, Macau and Taiwan.
2 Find out more about MSCI at
For useful background on China A shares, see “Consultation
on China A-Shares Index Inclusion Roadmap”, published by
MSCI in June 2016.
3 China A shares means shares denominated in Renminbi that
are traded on the Shanghai and Shenzhen stock exchanges.
4 See , last
accessed on 23 November 2016.
5 See the Foreign Exchange Administrative Rules on the
Domestic Securities Investment by Qualified Foreign
Institutional Investors (Revised Rules), which took effect
on 3 February 2016.
6 SAFE refers to the Chinese State Administration of Foreign
Exchange. The main regulations governing the QFII scheme are
the revised “Administrative Measures on Domestic Securities
Investment by Qualified Foreign Institutional Investors” issued
by the CSRC, the PBOC and the SAFE in 2006, the Provisions
on the Foreign Exchange Administration of Domestic Securities
Investments by Qualified Foreign Institutional Investors issued
by the SAFE on 29 September 2009, the “Provisions on
Relevant Matters concerning the Implementation of Measures
for the Administration of Securities Investment within the
Borders of China by Qualified Foreign Institutional Investors
issued by the CSRC in July 2012, and the “Provisions on
Foreign-Exchange Administration of Domestic Securities
Investment by Qualified Foreign Institutional Investors” issued
by the SAFE in December 2012, and the Foreign Exchange
Administrative Rules on the Domestic Securities Investment by
Qualified Foreign Institutional Investors (Revised Rules) which
took effect on 3 February 2016.
7 Sew ,
last accessed on 23 November 2016.
8 PRC is People’s Republic of China.
9 For further information see the FAQ on beneficial ownership
published by the China Securities Regulatory Commission
at
PressConference/201505/t20150515_277108.html,
last accessed on 10 November 2016.
10 See
/c/4121069.shtml, last accessed on 10 November 2016.
11 Announcement on Matters concerning Permitting the Access
of Foreign Central Banks and Similar Institutions to China’s
Inter-Bank Foreign Exchange Market (PBOC Announcement
[2015] No. 31 Announcement) and Announcement on Relevant
Matters concerning Further Improvement in the Investment in
the Interbank Bond Market by Foreign Institutional Investors
(PBOC Announcement [2016] No. 3 Announcement).
12 POBC is People’s Bank of China.