Accessing Investment in
China: A Practical Guide to the
RQFII Programme
Choo Lye Tan, Partner, K&L Gates Hong Kong
Philip Morgan, Partner, K&L Gates London
Tuesday 23 September 2014
© Copyright 2014 by K&L Gates LLP. All rights reserved.
Introduction
 Key features of the RQFII Programme, and an update
on its latest developments
 How to take advantage of the RQFII Programme,
including a discussion on its use in combination with
other programmes such as Asian Fund Passports,
Mutual Recognition and Stock Connect Programmes
 Practical issues being faced by RQFII participants
 Choice of jurisdiction for launching an RQFII
application
 A comparison with the QFII Programme
 Anecdotal information on existing licence-holders and
approaches being adopted
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Key Features of the RQFII Programme,
and an Update on its Latest Developments
 Six “practising” jurisdictions currently - Hong Kong,
Singapore, London, Paris, Germany and South Korea
 Status of Taiwan - approved as a Relevant Jurisdiction
by the PRC regulatory authorities but restricted by
local Taiwanese political constraints
 Hopeful jurisdictions - Luxembourg, Australia,
Switzerland
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How to Take Advantage of the RQFII
Programme
 Use of RQFII licence and quota to create RMBdenominated, PRC-focused products - e.g. bond
funds, ETFs
 Stock connect vs RQFII - why do I need an RQFII
licence if I can buy PRC stocks directly?
 Disadvantages of stock connect scheme:
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Restricted to Shanghai Stock Exchange,
Only certain stocks,
Quota limits,
Lack of clarity on key legal issues such as ownership,
enforcement in the event of any issues
 Much tighter delivery period of T+1,
 Withholding tax on capital gains
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How to Take Advantage of the RQFII
Programme
 Mutual Fund Recognition Scheme
 Status of Asia Regional Passport
 Australia, South Korea, New Zealand and Singapore signed
a statement of intent initially at the APEC Finance Ministers
Meeting in Sept 2013;
 Later joined by Thailand and the Philippines
 Status of ASEAN Passport
 Currently includes Malaysia, Singapore and Thailand but is
open to other countries within the sub region
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How to Take Advantage of the RQFII
Programme
 ETFs - previously synthetic funds which tracked the
performance of PRC domestic securities can now be
based directly on PRC domestic securities
 Stock exchange listings - dual listings
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How to Take Advantage of the RQFII
Programme
 Liquidity requirements for UCITS - why RQFII funds
would qualify where QFII funds would not
 RQFII UCITS authorised by Luxembourg’s CSSF in
November 2013
 Ashmore launched Luxembourg RQFII UCITS in June
2014, reportedly constituted as a SICAV – marketing
advantages of UCITS wrapper, reportedly sterling
share classes are planned
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How to Take Advantage of the RQFII
Programme
 Three of the largest Chinese Banks have established
their European headquarters in Luxembourg
 RQFII UCITS fund approved by Irish Central Bank in
December 2013
 Several SFC-regulated managers are managing both
Irish UCITS and Irish Qualified Investor Alternative
Investment Funds (“QIAIFs”), the latter offering
greater freedom from investment, borrowing and
leverage restrictions
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How to Take Advantage of the RQFII
Programme
 January 2014, Hong Kong-based management
company CSOP and Irish-based Source listed the
first RQFII ETF on the London Stock Exchange
 The London Stock Exchange has established
secondary market trading arrangements for trading
and settling in Chinese Renminbi and Hong Kong
Dollars, enabling ETFs to trade in those currencies
 UK has just announced a plan to issue a RMB 2
billion (£200 million) government bond: should help
corporate bond issuances in RMB by creating a
benchmark
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Practical Issues Being Faced by RQFII
Participants
 Availability of offshore RMB
 Uncertainty in respect of withholding tax - why RQFII
is different from QFII and stock connect
 Lack of clarity in rules and timing
 Costs
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Choice of Jurisdiction for Launching an
RQFII Application
 Need to know your product, market, expertise:
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What products will you be launching?
Who will such products be attractive to?
What are your long-term plans?
Which jurisdiction affords you the greatest expertise in
terms of administrative and ancillary services?
 i.e. custodians, administrators, investment professionals with PRC
securities expertise
 Do you anticipate a secondary launch through further fund
offerings (consider passports, dual listings, etc.)
 Cost considerations
 Track record
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A Comparison with the QFII Programme
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Tax
Repatriation of profits
Open-ended China funds vs open-ended funds
Recycling of quotas, investment limits, lock-up
periods
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Anecdotal Information on Existing LicenceHolders and Approaches Being Adopted
 “Borrowing” of investment quotas
 So you have your RQFII licence….now what?
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Contact us
Philip Morgan
Choo Lye Tan
Partner, K&L Gates, London
Philip.morgan@klgates.com
+44.(0).20.7360.8123
Partner, K&L Gates, Hong Kong
Choolye.tan@klgates.com
+852.2230.3528
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