Definition
The Qualified Foreign Institutional Investor program, one of the first efforts to internationalize the RMB, represents China’s effort to allow, on a selective basis, global institutional investors to invest in its RMB denominated capital market. Once licensed, foreign investors are permitted to buy RMB-denominated “A shares” in China’s mainland Shanghai and Shenzen stock exchanges. Thus foreign investors benefit from an opportunity to invest onshore, which is otherwise often insulated from the rest of the world, and subject to capital controls governing the movement of assets in-and-out of the country.
Qualified Foreign Institutional Investor – QFII
What is ‘Qualified Foreign Institutional Investor – QFII’
A program that permits certain licensed international investors to participate in China’s mainland stock exchanges. The Qualified Foreign Institutional Investor program was launched by the People’s Republic of China in 2002 to allow foreign investors access to its stock exchanges in Shanghai and Shenzhen. Prior to QFII, foreign investors were not able to buy or sell shares on China’s stock exchanges because of China’s tight capital controls. With the launch of the QFII program, licensed investors can buy and sell yuan-denominated “A” shares. Foreign access to these shares is limited by specified quotas that determine the amount of money that the licensed foreign investors are permitted to invest in China’s capital markets.
Explaining ‘Qualified Foreign Institutional Investor – QFII’
As of April, 2012, the combined quota for the Qualified Foreign Institutional Investor program was set at U.S. $80 billion. The quotas are granted by SAFE – China’s State Administration of Foreign Exchange, and the quotas can be adjusted to reflect and respond to the country’s economic and financial situation. Type of investments include listed stocks (excluding foreign-oriented, or “B” shares); Treasury bonds, corporate debentures and convertible bonds, and other financial instruments approved by the China Securities Regulatory Commission (CSRC). To be approved as a licensed investor, certain qualifications must be met (qualifications are dependent upon the type of investor – such as fund management companies and insurance companies). For example, fund management companies are required to have a minimum of five years of experience in assets management and must have managed at least U.S. $5 billion in securities assets in the most recent accounting year. A specified amount of foreign currency, transferred and converted to local currency, is also required for approval.
Further Reading
- Foreign investment in China and qualified foreign institutional investor (QFII) – link.springer.com [PDF]
- Qualified foreign institutional investor ownership deregulation and the restatement of financial reports—empirical findings from Taiwan – www.sciencedirect.com [PDF]
- Do qualified foreign institutional investors herd in Taiwan's securities market? – www.tandfonline.com [PDF]
- China's qualified foreign institutional investor and qualified domestic institutional investor programs – ideas.repec.org [PDF]
- Domestic and foreign institutional investors' behavior in China – www.tandfonline.com [PDF]
- The Qualified Foreign Institutional Investor System and Corporate Governance in China – link.springer.com [PDF]
- The influence of qualified foreign institutional investors on the association between default risk and audit opinions: Evidence from the Chinese stock market – onlinelibrary.wiley.com [PDF]
- Auditor choice and institutional investor characteristics after the Enron scandal in the French context – www.inderscienceonline.com [PDF]
- Qualified Foreign Institutional Investor Shareholdings and Corporate Operating Performance – www.utpjournals.press [PDF]
