Foreign Institutional Investment in China
Various Access Channels
January 2021

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U.S. and AFME in Europe, ASIFMA also provides insights on global bestpractices and standards to benefit the region.

TABLE OF CONTENTS
I. Access from onshore..................................................................................................................... 1
1.1 QFI ........................................................................................................................................... 1• QFII ................................................................................................................................ 1• RQFII .............................................................................................................................. 1• Removal of all quotas ................................................................................................... 2• Merger of QFIi and RQFII schemes ............................................................................... 2• Eligible institutions........................................................................................................ 2• Investment scope.......................................................................................................... 3• Other permitted activities ............................................................................................ 4• Lock-up.......................................................................................................................... 4• Holding structure .......................................................................................................... 4• Repatriation .................................................................................................................. 4• Custodians..................................................................................................................... 5• Brokers .......................................................................................................................... 5• Trading and settlement................................................................................................. 5
1.2 CIBM Direct ............................................................................................................................. 5• Eligible institutions........................................................................................................ 6• Investment scope.......................................................................................................... 6• Investment currency ..................................................................................................... 6• Bond Settlement Agent................................................................................................. 7• Trading and settlement................................................................................................. 7• Non-trade transfers ...................................................................................................... 8
II. Access from offshore .................................................................................................................... 9
2.1 Stock Connect.......................................................................................................................... 9
2.1.1 Mainland-Hong Kong ................................................................................................... 9• Eligibility..................................................................................................................... 9• Investment scope ...................................................................................................... 9• Quota ....................................................................................................................... 10• Holding structure ..................................................................................................... 10• Investor ID ............................................................................................................... 10• SPSA and Master SPSA............................................................................................. 10• Settlement ............................................................................................................... 11
2.1.2 Shanghai-London ....................................................................................................... 11
2.2 Bond Connect ........................................................................................................................ 11• Eligibility ...................................................................................................................... 11• Investment scope........................................................................................................ 11• Investment currency and FX banks ............................................................................. 12• Holding structure ........................................................................................................ 12• Trading and settlement............................................................................................... 12• Trading fees and price with built-in fees .................................................................... 122.3 Wealth Management Connect ............................................................................................ 13
2.4 MRF...................................................................................................................................... 13
2.5 ETF Cross-listings ................................................................................................................. 13
III. Comparison Tables...................................................................................................................... 14
3.1 Equities ............................................................................................................................... 14
3.2 Fixed income ....................................................................................................................... 15
IV. Glossary......................................................................................................................................... 17

Accessing China’s Capital Market
With the gradual opening to foreign institutional investors (“FIIs”) of China’s capital market beginningin 2002, FIIs now have many ways of accessing China’s capital market. This paper sets out the various
investment access channels for FIIs and captures the major developments since our March 2019 paperon Foreign Institutional Investment in China: An Asset Management Perspective.

I.

Access from onshore

The first avenues for FIIs to invest in China’s capital markets were from onshore, which mean that FIIs
have to first set up an account in China, convert foreign currency (“FX”) into Renminbi (“RMB”)
onshore (also referred to as “CNY”), make the investments onshore, and when they want to repatriate
the income and profit from these investments, convert CNY back into FX and remit offshore.
The issues for FIIs with investing from onshore in China include having to work with a trading, clearing
and settlement infrastructure that is often incompatible with what they are used to globally, being
exposed to foreign exchange risk with limited hedging options and the risk of repatriation being
delayed or blocked. However, these issues are often offset by access to a bigger range of securities
and investment products than investing from offshore as detailed below.

1.1 QFIQFII
China opened its capital markets to FIIs initially through the Qualified Foreign Institutional Investor(“QFII”) scheme which was introduced in 2002. Under the QFII scheme, FIIs must first qualify as a QFIIwith the China Securities & Regulatory Commission (“CSRC”) and then obtain a quota amount for theirinvestments from the State Administration of Foreign Exchange (“SAFE”). The initial quota for thewhole QFII scheme was USD 4 billion, which was increased to USD 10 billion in 2005, USD 30 billion in
2007, US$80 billion in 2012, US$150 billion in 2013 and US$300 billion in 2019.
RQFII
With China deciding in 2009 to promote the internationalization of the RMB, the first Renminbi
Qualified Foreign Institutional Investor (“RQFII”) scheme was launched in Hong Kong in December
2011 to enable FIIs to invest in China with offshore RMB (also referred to as “CNH”). The maindifferences between the QFII scheme and the RQFII scheme are RQFIIs would use offshore RMB or
CNH rather than onshore RMB or CNY to invest in China, and RQFIIs had to be domiciled in one of thedesignated RQFII jurisdictions with an allocated RQFII quota. There were other differences between
the two schemes, which the Mainland authorities tried to align in recent years and finally eliminatedin 2020.
The initial quota for the RQFII scheme in Hong Kong was RMB 20 billion, which was increased to RMB
70 billion in April 2012, RMB 270 billion in November 2012 and RMB 500 billion in 2017. The RQFII
schemePage 1

scheme was subsequently expanded to London and Singapore in 2013, and to more cities/countries
thereafter. As of May 2020, 19 countries or jurisdictions were granted a RQFII quota totalling RMB
1,940 billion.
Removal of all quotas
All quotas for both the QFII and RQFII schemes were eliminated from 6 June 2020 under the
Regulations on Funds of Securities and Futures Investment by Foreign Institutional Investors (the“New QFI Capital Management Regulations”) issued by the People’s Bank of China (“PBOC”) and SAFE
on 7 May 2020 1.
Merger of QFII and RQFII schemes
The QFII and RQFII schemes were also formally merged into a single Qualified Foreign Investor (“QFI”)
scheme when the long-awaited Measures for the Administration of Domestic Securities and Futures
Investment by Qualified Foreign Investors and the Provisions on the implementation of such Measures(the “New QFI Regulations”) were issued in September 2020 2, more than 18 months after the draft
regulations came out for public consultation in January 2019.
As proposed, the New QFI Regulations merged into one set of regulations what used to be separate
regulations for the QFII and RQFII schemes, with eligible FIIs being able to apply in a single application
to be a QFI and to invest using either CNY or CNH without any quota limitation. As of November 2020,
CSRC has granted licenses to a total of 535 QFIs (i.e. QFIIs and RQFIIs).

Eligible institutions
Before November 2020, only asset managers, banks, insurance companies, securities companies andother types of FIIs such as pension funds, charitable funds, endowment funds, trust companies,
government investment management institutions, with a certain amount of assets undermanagement (“AUM”) and number of years of operations were eligible to apply for a QFII or RQFII
license.
These eligibility requirements were substantially relaxed under the New QFI Regulations. In addition
to the aforementioned types of FIIs, the New QFI regulations included futures companies, sovereign
funds and international organizations. The specific AUM and years of operation requirements for QFIs
were removed and replaced with general requirements such as financial soundness, good credit
records, experience in securities and futures investment, sound and effective governance structure,internal control, compliance management regime and procedures, and no record of major regulatory
penalties in the latest three years or since establishment. Notably, a new requirement was added that
QFIs should not be in a position to have a significant impact on the overall domestic capital market.

Regulations on Funds of Securities and Futures Investment by Foreign Institutional Investors. PBOC and SAFE. 7 May 2020.
http://www.safe.gov.cn/safe/2020/0507/16130.html
2 Measures for the Administration of Domestic Securities and Futures Investment by Qualified Foreign Investors and the Provisions on theimplementation of such Measures. PBOC, CSRC and SAFE. 25 September 2020.
http://www.csrc.gov.cn/pub/csrc_en/newsfacts/release/202009/t20200925_383652.html
1Page 2Investment scope
The investment scope of QFIs also expanded over time. Below is a table showing the gradualexpansion of the investment scope and activities for QFIs:
QFI’s investment scope
Dec 2002•

Stocks and bonds listed on stock exchanges

From May 2011•

Stock index futures

•
•
•
•

Fixed income products on the China interbank bond market (“CIBM”)
Publicly offered securities investment funds
Asset-backed securities (“ABS”) listed on stock exchanges
Subscriptions for IPOs, convertible bond issuances, secondary shareofferings and share allocations on Shanghai Stock exchange (“SSE”)
and Shenzhen Stock Exchange (“SZSE”)

From Nov 2017•

FX derivatives for hedging purpose only

From June 2019•

Shares listed and traded on SSE’s Science & Technology Innovation
Board (“STAR”) market

From November 2020•

Shares listed and traded on the National Equity Exchange & Quotation(“NEEQ”)
Derivatives on bonds, interest rates and foreign exchange on the
CIBM
Financial futures listed and traded on the China Financial Futures
Exchange (“CFFEX”)
Commodity futures contracts listed and traded on approved futures
exchanges
Options listed and traded on approved exchanges
Private investment funds whose investments falls within the QFIinvestment scope
Subscription for bond issuance
Subscription for IPOs, secondary share offerings and share allocations
on NEEQ
Margin trading and securities financing on stock exchanges, andsecurities lending to securities finance company
QFI can appoint its affiliated PFM WFOE as its investment adviser

From July 2012

•
•
•
•
•
•
•
•
•

When applying for a QFI license, FIIs need to disclose their investment plan or strategy to the CSRC.
In the new QFI application template issued by the CSRC in December 2020, the QFI applicant isrequired to disclose their investment strategies for stock, bond, commodity, market neutral, macroand event-driven, for each account. QFIs are required to keep their investment behaviour consistent
with such disclosed strategies and notify the CSRC before making any changes thereto.

Page 3Other permitted activities
QFIIs/RQFIIs were allowed under the original regulations to entrust the management of theirsecurities investment in China to domestic asset management institutions including securities
companies but this was not included in the New QFI Regulations. In response to ASIFMA’s query, CSRC
confirmed that QFIs may no longer entrust their domestic securities investment management to retailfund management companies (“FMCs”), for example, through an investment management
arrangement. However, under the New QFI Regulations, QFIs may invest in private investment funds
issued by securities and futures operating institutions and private investment fund managers (“PFMs”)
registered with the Asset Management Association of China (“AMAC”). They may also entrust theiraffiliate PFMs to provide investment advice to them.
In addition, QFIs may entrust their cash and financial assets to a single asset management scheme ofa securities and futures operating institution (which would include FMCs) according to the
Administrative Measures for the Private Asset Management Business of Securities and Futures
Operating Institutions issued by the CSRC in October 2018 3.
Lock-up
QFIIs used to be subject to a lock-up period of a year, which was then reduced in 2009 to three months
for pension funds, insurance funds, mutual funds, charitable funds, endowment funds, government
and monetary authorities and open-ended funds, and in 2016 to all types of QFIIs. RQFIIs were also
subject to an initial lock-up period of one year, which was reduced to three months in 2016 but RQFII
open-ended funds were never subject to any lock-up period.
The lock-up requirement for both QFIIs and RQFIIs were removed in 2018.
Holding structure
Securities acquired by QFIs may be held in accounts either named as: (a) QFI + Proprietary Funds, (b)QFI + Client Name, (c) QFI + Fund, or (d) QFI + Client Fund. The ownership of the securities held in (b),(c) and (d) above belongs to the client or the fund and shall be kept independent of the assets of the
QFI and its custodian.
Repatriation
Before June 2018, QFIIs were subject to restrictions on repatriation in that their monthly repatriation
could not exceed 20% of their total net asset value at the end of the previous year and they had to filewith the local tax authorities and obtain a tax certificate after audit before they can actually repatriate
or remit funds abroad. The monthly repatriation limit for QFIIs was removed in June 2018.
The New QFI Capital Management Regulations, which became effective in June 2020, further
facilitated QFIs’ profit repatriation by replacing the tax clearance or audit requirement with just an

3Administrative Measures for the Private Asset Management Business of Securities and Futures Operating Institutions. CSRC. 22 October
2018. http://www.csrc.gov.cn/pub/zjhpublic/zjh/201810/P020181022804792210933.pdf

Page 4

undertaking from the QFI that it will fulfil all the tax liabilities without it having to pay all the taxes
before it can repatriate.
Custodians
QFIs are required to appoint an onshore custodian who is responsible for safekeeping of their assets,
providing investment clearing and settlement, FX settlement, and sales and recordkeeping services tothem, monitoring their investment activities, and providing reports or information to the CSRC, PBOC
and SAFE according to the rules and regulations.
Before June 2020, QFIIs can only appoint one onshore custodian while RQFIIs can appoint threeonshore custodians. The New QFI Capital Management Regulations removed this limit.
Brokers
QFIIs and RQFIIs were limited to trading through a maximum of three brokers on each of the SSE andSZSE. Moreover, shares purchased through one broker must be sold through the same broker. The
New QFI Regulations removed the limit on the number of brokers that QFIs may use but they still needto sell the securities they acquired through the same broker.
Trading and settlement
QFI’s trading follows the China onshore settlement cycles. For stock trading, the movement of
securities occurs on trade day (“T”) while the movement of cash occurs on T+1. For bond trading,investors have the choice of settling their trade on T, T+1, T+2 and T+3 and even T+4 and beyond foroverseas investors that are facing different local holiday arrangements.
Due to equity securities settling on T onshore in China, QFIs generally have to pre-fund their buy orders
by transferring the necessary funds onshore by T-1, which is highly undesirable. And because
securities settle on T while cash settles on T+1, there is no delivery against payment (“DvP”)
particularly for QFIs selling equity securities which is problematic. FIIs would like to see China movetowards a T+2 settlement cycle, which is the norm globally, or at least a T+1 settlement cycle, forequities so that there would be DvP.

1.2 CIBM Direct
Bonds are traded on two markets in China: (a) CIBM where the government and policy bank bonds aretraded, and (b) the stock exchanges or exchange market where the corporate bonds are traded. CIBM
is the much larger market, accounting for almost 85% of all bonds traded in China as of November
2020. Trading under CIBM is regulated by PBOC and cleared and settled by China Central Depositary& Clearing Corporation (“CCDC”) while bonds traded in the exchange market are regulated by CSRC
and cleared and settled by Shanghai Clearing House (“SCH”).
In July 2020, PBOC and CSRC announced that CIBM and the exchange bond market will be connected
so that qualified investors can trade bonds on both markets through connected infrastructures.
Details for implementing such connectivity has not been released yet.

Page 5

Eligible institutions
In 2010, China took the first step to launch a pilot allowing foreign central banks and monetary
authorities, foreign RMB clearing banks and participating banks to invest in the CIBM under what is
known as the “CIBM Direct”. The participation of this first group of FIIs in the CIBM Direct was subject
to PBOC approval and a quota granted by SAFE. But the quota requirement for CIBM Direct wasremoved in July 2015.
QFIIs and RQFIIs were also allowed to invest under the CIBM Direct in 2011 and 2013, respectively,
subject to CSRC and PBOC approval. In July 2015, China announced that international financialorganizations and sovereign wealth funds could also invest in the CIBM. The types of FIIs that canparticipate in CIBM Direct was further expanded in February 2016 to include foreign financial
institutions such as commercial banks, insurance companies, securities companies, fund managementcompanies and other asset management institutions, and the investment products issued by suchfinancial institutions as well as medium and long term institutional investors approved by PBOC suchas pension funds, charity funds and endowment funds.
As of the end of 2020, there were 468 FIIs investing through the CIBM Direct and foreign institutions’total holdings in the CIBM amounted to RMB 3.25 trillion, accounting for approximately 3.2% of thetotal bond holdings in the CIBM.
Investment scope
Under CIBM Direct, foreign reserve institutions (i.e. central banks, monetary authorities,
international financial organizations and sovereign wealth funds) may invest or conduct transactions
in cash bonds, bond repos, bond borrowing and lending, bond forwards, interest rate swaps (“IRS”),
forward rate agreements (“FRA”) and other transaction types as permitted by the PBOC while theother FIIs may invest only in cash bonds and engage, for hedging purposes only, in bond borrowing
and lending, bond forwards, FRA and IRS. CIBM Direct investors as well as QFIIs were also allowed tohedge their FX risks using FX derivatives onshore starting from 24 February 2017.
On 2 September 2020, PBOC, CSRC and SAFE issued a Consultation on the Announcement on
Matters related to FIIs investing in China’s Bond Market (the “China Bond Market Consultation”)
which proposed to further expand the China bond market investment scope for foreign investors
under all access channels to include cash bonds (both traded on the CIBM and the exchanges), thederivatives thereof, bond funds (including exchange traded funds (“ETFs”)) and other instruments
permitted by PBOC and CSRC. ASIFMA responded to this Consultation and is looking forward to theissuance of the final Announcement.
Investment currency
CIBM Direct investors may invest in the CIBM using either CNY or CNH but they must ensure that they
repatriate in the same CNY or CNH with which they invested, and the ratio of FX to RMB in theaccumulated outward remittance must basically be in line with that of the accumulated inward
remittance and should not vary by more than 10% upward or downward (except for the first outward
remittance). However, in the Consultation on Regulations on Capital Management of FIIs investing inPage 6

China’s Bond Market issued by PBOC and SAFE on 21 September 2020, the foregoing requirements
were replaced with the proposal that for CIBM Direct investors investing with both FX and CNH, theaccumulated FX remitted outbound shall not exceed 1.2 times of the accumulated FX remitted
onshore (except for remittances from investment liquidations).
Bond Settlement Agent
Under CIBM Direct, FIIs need to entrust a bond settlement agent (“BSA”) onshore to engage in trading
and settlement for them. The BSA is responsible for making a filing on behalf of the FII with PBOC
Shanghai head office, opening accounts at China Foreign Exchange Trade System (“CFETS”), CCDC andSCH in the name of the FII, and trade on behalf of the FII.
In the China Bond Market Consultation issued in September 2020, it was proposed that FIIs may
entrust a local custodian, directly or through its offshore custodian, to hold their assets onshore, whichsuggests that CIBM Direct investors may no longer need to appoint a BSA and that their global
custodian can appoint the local custodian without the FII having to do so themselves.
Trading and settlement
FIIs under CIBM Direct used to have to obtain price quotations and trade through their BSA. However,on 1 September 2020, CFETS launched its CIBM Direct RFQ service which allows FIIs to directly sendrequest for quotations (“RFQ”) to onshore dealers and then complete the trade through certain
foreign third party platforms that are connected to CFETS without going through their BSA. The
minimum size of each trade that FIIs can do under this service is RMB 10,000 with minimum
increments of RMB 10,000.
The trading hours in the CIBM used to be from 9:00 am to 12:00 pm and from 1:30 pm to 4:30 pm
China Standard Time (“CST”). However, from 21 September 2020, the afternoon session for cash bondtransactions that settle on T+1 or beyond is extended from 1:30 pm to 8:00 pm CST.
Trading in the CIBM settles on a DvP basis and FIIs have the option to settle at T, T+1, T+2 and T+3,
and even T+4 and beyond for overseas investors that are facing different local holiday arrangements
according to the Joint Notice on Extension of Bond Settlement Cycle for Overseas Institutional
Investors issued by CFETS, CCDC and SCH in August 2019 and the notices on flexible settlement
arrangements for foreign institutional investors issued by CCDC and SCH in March 2020.
In response to ASIFMA’s recommendation to avoid failed trades having to be cancelled resulting in theneed to re-price a trade the following business day, rolling settlement was introduced for FIIs by CCDC
and SCH in March 2020 whereby, upon agreement of the counterparties, the settlement date of afailed trade can be extended by three working days.
Again, at the persistent urging of ASIFMA, CFETS enhanced its system and was able to introduce on 4
January 2021 a feature known as the “dealer pay model” whereby FIIs can request a price quotationfrom onshore bond dealers with CFETS’ trading fee built into the bond price.

Page 7

Non-trade transfers
In response to ASIFMA’s request to enable FIIs to consolidate their securities holdings under various
China access schemes, PBOC and SAFE issued a Notice on 30 September 2019 that allows FIIs, startingfrom 15 November 2019, to make non-trade transfers of their bond holdings and cash between their
QFII/RQFII account and their CIBM Direct account.
The aforementioned Notice does not extend to non-trade transfers with Bond Connect or Stock
Connect accounts as these are offshore access channels as opposed to QFI and CIBM Direct which areonshore access channels. For FIIs that want to consolidate or transfer their securities holdings
between onshore and offshore schemes, they currently are only able to do so by selling their holdings
under one scheme and using the proceeds thereof to invest through the other scheme. The foregoinghas a lot of disadvantages for FIIs, such as incurrence of transactional costs and taxes, risk of foreignexchange and market movements, etc.

Page 8

II.

Access from offshore

To further attract foreign investment in China’s capital markets, China introduced a number of“Connect” schemes starting in 2014 whereby foreign investors (mainly FIIs but also retail investors in
the case of Stock Connect) can invest in China’s capital markets from outside the Mainland, primarily
from Hong Kong, without having to open accounts onshore in China.
Many FIIs prefer investing through the offshore schemes set up in Hong Kong because Hong Kong’s
trading, clearing and settlement infrastructure is comparable those of the international markets andthey also do not have to worry about repatriation risks. However, the offshore Connect schemes
generally are more limited in their investment scope and permitted activities than those of theonshore schemes.

2.1 Stock Connect
2.1.1

Mainland-Hong Kong

The first Connect scheme was introduced in 2014 with the launch of the Shanghai-Hong Kong Stock
Connect in November 2014 followed by the launch in December 2016 of the Shenzhen-Hong Kong
Stock Connect (collectively referred to as “Stock Connect”). The Stock Connect operates both ways,
where foreign investors can invest into the Mainland market and Mainland investors can invest into
the Hong Kong market. This paper, however, will focus only on the access by FIIs into the Mainlandmarket.
Eligibility
Stock Connect is opened to both individual and institutional investors, except that (i) only Mainland
individual investors with RMB 500,000 in their securities and cash accounts may invest throughsouthbound Stock Connect, and (ii) only institutional professional investors are allowed to invest in
stocks listed and traded in SZSE’s ChiNext Board and starting from 1 February 2021, also stocks in SSE’s
STAR Board, through the northbound Stock Connect.
At the urging of ASIFMA, the Stock Exchange of Hong Kong (“SEHK”), on 15 November 2019, extended
the dispensation from the requirement that brokers look through to ensure that the underlying
investors of ChiNext shares are institutional professional investors for asset managers not only with aType 9 license in Hong Kong but also for those asset managers regulated under the law of any placeoutside Hong Kong.
Investment scope
The investment scope under Stock Connect is narrower than that for QFIs and is limited to (a) all theconstituent stocks of the SSE 180 Index and the SSE 380 Index, (b) all the constituent stocks of SZSE
Component Index and the SZSE Small/Mid Cap Innovation Index which have a market capitalization of
not less than RMB 6 billion, and (c) all the SSE/SZSE-listed A shares that are not included as constituent
stocks of the relevant indices but which have corresponding H shares listed on the SEHK, except for
those shares that are not traded in RMB or are under risk alert.

Page 9

As a result, as of 15 January 2021, only 574 out of a total of 1,846 securities listed in the SSE (Main
Board, STAR Board) and only 884 out of a total of 2,361 securities listed in the SZSE (Main Board, SME
and ChiNext) are eligible for trading under the Stock Connect. FIIs obviously would like to see theinvestable universe greatly expanded under Stock Connect as many prefer investing through thisoffshore investment channel.
Quota
Stock Connect was launched with both an aggregate quota of RMB 300 billion for northbound and
RMB 250 billion for southbound Stock Connect as well as a daily quota of RMB 13 billion for
northbound and RMB 10.5 billion for southbound Stock Connect.
The aggregate quota for Stock Connect was removed in August 2016 and while the daily quota
remains, it was quadrupled on 1 May 2018 to RMB 52 billion for each of the northbound Stock Connect
and to RMB 42 billion for each of the southbound Stock Connect at the urging of ASIFMA in
anticipation of MSCI’s inclusion of A-shares into its global emerging market indices in May and Augustthat year.
Holding structure
Foreign investors’ securities acquired through the Stock Connect are registered in the name of Hong
Kong Securities Clearing Company Limited (“HKSCC”), as nominee, and held in accounts maintainedby HKSCC with China Securities Depository and Clearing Co., Ltd (“CSDC”). CSRC clarified in May 2015that HKSCC is the nominee holder and that foreign investors enjoy the beneficial ownership and rights
in the securities purchased through Stock Connect.
Investor ID
To protect investors, ensure market efficiency and transparency and reduce systemic risk, regulators
globally are gradually introducing investor ID requirements. An investor ID regime was introduced
under northbound Stock Connect in September 2018 which is aligned with the see-through model in
the Mainland market. Foreign investors investing through Stock Connect are assigned a unique
number known as the "broker-to-client assigned number" (BCAN) at either fund level or fund manager
level. Brokers will provide "client identification data" (CID) related to the BCAN to SEHK, which will
forward the information to the Mainland exchanges, and will tag all buy and sell orders with theappropriate BCAN for market monitoring and surveillance purposes.
SPSA and Master SPSA
Due to the fact that in the Mainland investors are only allowed to sell stocks that are available in theiraccounts at the end of the previous day (i.e. T-1), pre-trade checking is required for trading throughthe northbound Stock Connect. To facilitate pre-trade checking without requiring foreign investors totransfer securities to their broker on T-1, SEHK introduced in a Special Segregated Account (“SPSA”)
service in 2015 whereby an investor or its custodian can open a SPSA at the HKSCC’s Central Clearing
and Settlement System (“CCASS”) and CCASS will take a snapshot of the securities under each SPSA
and replicate such holdings to the SEHK’s China Stock Connect System for pre-trade checking. And, toPage 10further facilitate trading by asset managers, SEHK introduced on 10 July 2020 an enhanced Master
SPSA service whereby securities holdings in various SPSA accounts managed by the same asset
manager can be aggregated under that manager’s Master SPSA for ease of pre-trade checking andtrading.
Settlement
At the urging of ASIFMA, SEHK introduced DvP settlement for northbound Stock Connect in 2016 andRealtime DvP (RDvP) on 20 November 2017 as an additional option.
In addition, foreign investors investing through Stock Connect could only use CNH for cash settlement
before May 2018. However, PBOC issued on 18 May 2018 a Circular that allows foreign institutions inHong Kong to conduct CNY spot FX and hedging services for Stock Connect investors which means that
foreign investors can also settle trades using USD and HKD.
2.1.2

Shanghai-London

A Stock Connect between Shanghai and London was formally launched in June 2019 whereby eligible
SSE-listed companies can list Global Depositary Receipts (“GDRs”) on the London Stock Exchange(“LSE”) for investment by foreign investors (i.e. westbound) and eligible LSE-listed companies can list
Chinese Depository Receipts (“CDRs”) on the SSE for investment by Mainland investors (i.e.
eastbound). The Shanghai-London Stock Connect was launched with an aggregate quota of RMB 300
billion for westbound and RMB 250 billion for eastbound. As of the end of 2020, there are four GDRs
listed on the LSE while no CDRs has been listed on the SSE yet.

2.2 Bond Connect
Following the launch of CIBM Direct in 2010, a northbound Bond Connect scheme was introduced on
3 July 2017 between the Mainland and Hong Kong.
Eligibility
The scope of FIIs that are eligible to invest through Bond Connect is the same as that for CIBM Direct,
which include central banks, monetary authorities, international financial organizations and sovereign
wealth funds, foreign established commercial banks, insurance companies, securities companies, fundmanagement companies and other asset management institutions, and the investment products
issued by them, as well as medium- and long-term institutional investors approved by PBOC such aspension funds, charity funds and endowment funds. As of the end of 2020, 625 FIIs have entered the
CIBM through Bond Connect compared to 468 FIIs through CIBM Direct.
Investment scope
FIIs investing through Bond Connect currently have access only to cash bonds and primary issuancesin the CIBM. However, their investment scope is expected to be further expanded to include exchange
cash bonds, relevant derivatives, bond funds (including ETFs) as proposed in the China Bond Market
Consultation issued in September 2020 by PBOC, CSRC and SAFE.

Page 11Investment currency and FX banks
Under Bond Connect, FIIs are able to use both FX (to be converted into CNY) and CNH to invest andcan hedge their CNY exposures with FX derivatives. Until recently, Bond Connect investors could only
select one FX bank in Hong Kong for FX conversion and hedging purposes. But CFETS announced on
24 September 2020 that FIIs can select up to three FX banks. The implementation arrangements
thereof are currently being ironed out and expected to be introduced later this year.
Holding structure
Bonds purchased by FIIs through Bond Connect are held in the nominee account opened by the Hong
Kong Monetary Authority (“HKMA”)’s Central Moneymarkets Unit (“CMU”) at CCDC and SCH. FIIs canopen sub-accounts with CMU through their Hong Kong custodian (which has to be a CMU member)which will maintain the record of the FII’s bond holdings. PBOC clarified on 22 June 2017 that FIIs
enjoy the rights and interests of the bonds held for its account according to law.
Trading and settlement
Unlike CIBM Direct, FIIs under Bond Connect are able to trade directly through the approved offshore
trading platforms (which currently include Tradeweb and Bloomberg) by obtaining quotes fromapproved onshore dealers or market makers (of which there are currently 56 of them) through RFQs
and completing trades with them. In addition, FIIs investing through Bond Connect as well as CIBM
Direct are now able to allocate block trades to multiple client accounts (up to 99) prior to the trades.
Trading through Bond Connect settles on a DvP basis and FIIs have the option to settle at T, T+1, T+2
and T+3, and even T+4 and beyond for overseas investors that are facing different local holiday
arrangements. In addition, Bond Connect Company Limited (“BCCL”) announced on 31 March 2020
the availability of special settlement cycles and recycling settlement (i.e. rolling settlement) under
Bond Connect which were both suggested in ASIFMA’s March 2019 China paper.
Trading fees and price with built-in fees
Besides CFETS’ fee onshore, FIIs trading through Bond Connect have to pay an offshore fee to BCCL
for their account opening services and if they use a trading platform that charges for each trade (e.g.
Tradeweb), the fee of the offshore platform provider. Currently, the platform providers are
responsible for collecting these fees from the FIIs using Bond Connect and paying the relevant parties.
FIIs receiving these monthly bills from their platform providers then have to try to allocate these feesto their underlying funds and clients which they are not used to doing as bond trades elsewhere in theworld typically are done with all fees incorporated in the price of the bonds being quoted or traded.
At ASIFMA’s urging, CFETS has upgraded their system which enables these trading-related fees to bebuilt into the price of the bonds being quoted by onshore dealers. This feature (or referred to as the“dealer pay model”) has been introduced under CIBM Direct with Tradeweb at the beginning of 2021
and is expected to be launched under Bond Connect soon.

Page 12

2.3 Wealth Management Connect
To facilitate cross-boundary investment by individual residents in the Guangdong-Hong Kong-Macao
Greater Bay Area (the “GBA”), PBOC, HKMA and the Monetary Authority of Macao announced on 29
June 2020 that they have decided to implement a cross-boundary wealth management connect pilot
scheme (“Wealth Management Connect”) in the GBA.
Under the Wealth Management Connect, individual residents in the GBA can carry out cross-boundary
investment in wealth management products distributed by banks in the GBA. For example, undernorthbound Wealth Management Connect, residents of Hong Kong and Macao can invest in eligible
wealth management products distributed by Mainland banks in the GBA by opening designatedinvestment accounts with these banks in the Mainland while under southbound Wealth Management
Connect, residents of the Mainland cities in the GBA can invest in eligible investment products
distributed by banks in Hong Kong and Macao by opening designated investment accounts with thesebanks in Hong Kong.
The implementation details for the Wealth Management Connect are still being worked out among
the three authorities. But it is expected that only simple and low to medium risk products will beavailable at least in the initial stage and investors will be subject to both an individual quota and an
aggregate quota.

2.4 MRF
It is also worth mentioning that foreign investors interested in investing in Mainland retail funds may
do so under the Mainland-Hong Kong Mutual Recognition of Funds (“MRF”) scheme that was
introduced on 22 May 2015 to enable eligible Mainland and Hong Kong retail funds to be registeredand distributed in the other market. However, as of December 2020, 50 southbound funds from theMainland are approved for sale in Hong Kong with cumulative net sales totalling RMB 0.33 billion (asof November 2020) as compared with 29 northbound funds from Hong Kong approved for sale in the
Mainland with cumulative net sales totalling RMB 14 billion (as of November 2020). The cumulative
net sales in both directions of the MRF take up a small share of the two-way RMB 300 billion
aggregated quota allocated at the launch of this scheme.

2.5 ETF Cross-listings
While a Mainland-Hong Kong ETF Connect was reportedly in discussion for a number of years, no such
scheme has been introduced to date. However, China approved two cross-listings of ETFs between
SSE and the Tokyo Stock Exchange (“TSE”) in June 2019 and between SZSE and SEHK in October 2020.
These cross listings allow foreign investors to invest in TSE- or SEHK- listed ETFs that invest 90% ormore of their assets in an ETF listed in the Mainland and Mainland investors to invest in similar ETFs
listed on SSE or SZSE which invest more than 90% of their assets in an ETF listed in Japan or Hong Kong.
There are currently four TSE-listed ETFs and four SSE-listed ETFs under the SSE-TSE ETF “Connect” andtwo SEHK-listed ETFs and two SZSE-listed ETFs under the SZSE-SEHK ETF “Connect”.

Page 13

III. Comparison Tables
For ease of reference, set out below are comparisons of the differences between the various
schemes for FII investment in China equities and fixed income.

3.1 Equities
Table 1: Comparison of Access Channels to China Equities Market

Eligibleinvestors

Regulatory
approval
Quota

Account
structure

Holding
structure

QFI

Stock Connect (Northbound)

FIIs including fund management companies,
banks, insurance companies, securities
companies, futures companies, trust
companies, government investment
management companies, sovereign funds,
pension funds, charity funds, endowment
funds, international organizations and otherinstitutions recognized by the CSRC.

All foreign investors including individuals(but only institutional professional
investors for SZSE ChiNext shares and SSE
STAR shares).

CSRC license

None

None

Northbound daily aggregate quota of
RMB 52 bn

Onshore account with custodian in the nameof “QFI + Proprietary Funds”, “QFI + Client
Name”, “QFI + Fund”, or “QFI + Client Fund”

Offshore investor account in HK via
custodian with onshore nomineeomnibus account at CSDCQFI maintains account directly with CCDC andSCH

HKSCC, as nominee holder for investor•••
Eligibleinvestments•••

Investment
currency

Pre-funding

All securities listed on SSE/SZSE/NEEQ
Securities investment funds, including
close-ended, open-ended and ETFs
Private investment funds issued by
securities futures operating institutions or
AMAC-registered private fund managers
Financial futures, commodity futures andoptions traded on approved exchanges
IPOs, securities lending and margin trading
and securities financing
FX derivatives (for hedging purpose only)

Approximately 1460 stocks as of 15
January 2021:• 574 SSE shares: constituents of SSE
180 Index and 380 Index and dual
SSE-HKEX listed shares• 884 SZSE shares: constituents of
SZSE Component Index and SZSE
Small/Mid Cap Innovation Index withmarket cap ≥ RMB 6 bn and dual
SZSE-HKEX listed shares

CNY or CNH

CNH, HKD and USD

Required (cash available on T-1)

NonePage 14

QFI
Repatriation
limit
Block trading
Short selling
Securities
lending

Stock Connect (Northbound)

None

N/A

Yes

No

Yes

Yes, but only covered shorts and not
naked ones

Yes

Permitted with restrictions

3.2 Fixed Income
Table 2: Comparison of Access Channels to China Bond Markets
QFI

Eligibleinvestors

FIIs including fundmanagement companies,
banks, insurancecompanies, securities
companies, futurescompanies, trust
companies, government
investment managementcompanies, sovereign
funds, pension funds,charity funds, endowment
funds, internationalorganizations and otherinstitutions recognized by
the CSRC.

CIBM Direct
•
•
•

•

Regulatory
approval

Foreign reserves
institutions
Offshore RMB clearing/participating banks
Foreign financial
institutions(commercial
banks, insurancecompanies, securities
companies, FMCs andother asset
management
institutions) andinvestment products
issued by them
Other medium and longterm institutional
investors approved by
PBOC

Bond Connect
Same as CIBM Direct

CSRC license

Pre-filing with PBOC

Pre-filing with PBOC

None

None

None

Onshore account withcustodian in the name of“QFI + Proprietary Funds”,“QFI + Client Name”, “QFI +Onshore account withcustodian

Offshore investor account at
CMU in HK via custodianwith onshore nomineeomnibus account at CCDC
and/or SCH

Quota

Account
structure

Page 15QFI

CIBM Direct

Bond Connect

Investor maintains accountdirectly with CCDC and SCH

CMU, as nominee holder forinvestor

Fund”, or “QFI + ClientFund”

Holding
structure

QFI maintains accountdirectly with CCDC and SCH••
Eligibleinvestments•

Investment
currency
Pre-funding••

Foreign reserves
institutions: all cash
bonds, repos, bondborrowing and lending,bond forwards, IRS,
FRA, etc.
Other foreign
institutions: all cash
bonds and engage, for
hedging purposes only,
in bond borrowing andlending, bond forwards,
IRS, FRA, etc.

All cash bonds

CNY or CNH

CNY or CNH

CNY or CNH

Required (cash available on
T-1)

None

None

None

None, but ratio of inbound
CNH/CNY and outbound
CNH/CNY should be similar,
and its variation upward or
downward should notexceed 10%, and outbound
CNY/CNH should not exceed
110% of inbound CNY/CNH
in the first remittance

N/A, but a similar proportionof CNY, after investment,
must be converted back into
foreign currency if not reinvested

Yes

Yes

Yes

Repatriation
limit

Block trading

CIBM: Products andderivatives on bonds,
interest rates and FX
Exchange market:
government bonds,
enterprise bonds,
corporate bonds,
convertible bonds, etc.
Financial futures (e.g.
CGB futures) traded on
CFFEX

Page 16

IV. Glossary
Term
ABS
AMAC
ASIFMA
AUM
BCCL
BSA
CCASS
CCDC
CDRs
CFETS
CFFEX
CGB
China/Mainland
ChiNext
CIBM
CMU
CNH
CNY
CSDC
CSRC
CST
DvP
ETFs
FIIs
FMCs
FRA
FX
GBA
GDRs
HKD
HKMA
HKSCC
IPO
IRS
LSE
Master SPSA
MRF
NEEQ
PBOC

Definition
Asset-backed securities
Asset Management Association of China
Asia Securities Industry & Financial Markets Association
Asset under management
Bond Connect Company Limited
Bond settlement agent
Central Clearing and Settlement System
China Central Depository & Clearing Co., Ltd.
China Depositary Receipts
China Foreign Exchange Trade System
China Financial Futures Exchange
China government bonds
Mainland China excluding Hong Kong, Macao and Taiwan
SZSE’s high tech board
Chinese Interbank Bond Market
HKMA’s Central Moneymarkets Unit
Offshore Renminbi
Onshore Renminbi
China Securities Depository and Clearing Co., Ltd.
China Securities Regulatory Commission
China Standard Time
Delivery against payment
Exchange traded funds
Foreign institutional investors
Fund management companies
Forward rate agreements
Foreign exchange
Greater Bay Area
Global Depositary Receipts
Hong Kong Dollar
Hong Kong Monetary Authority
Hong Kong Securities Clearing Company Limited
Initial public offering
Interest rate swaps
London Stock Exchange
Master Special Segregated Account
Mainland-Hong Kong Mutual Recognition of Funds
National Equities Exchange and Quotations Co., Ltd
People’s Bank of China

Page 17Term
PFM
PFM WFOE
QFI
QFII
RFQ
RMB
RQFII
SAFE
SCH
SEHK
SPSA
SSE
STAR
SZSE
T / T+1 / T+2 / T+3
/ T-1
TSE
USD

Definition
Private securities fund managers
Wholly foreign-owned private fund manager
Qualified Foreign Investor
Qualified Foreign Institutional Investor
Request for quotation
Renminbi
Renminbi Qualified Foreign Institutional Investor
State Administration of Foreign Exchange
Shanghai Clearing House
Stock Exchange of Hong Kong
Special Segregated AccountShanghai Stock Exchange
Science & Technology Innovation Board
Shenzhen Stock Exchange
Trade date / the day after trade date / two days after trade date
/ three days after trade date / the day before the trade dateTokyo Stock Exchange
U.S. Dollar

Page 18

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