# **Appendix Table 1. Restrictions in the QFII, RQFII, and Stock Connect Programs**

Sources: Shanghai and Hong Kong Stock Exchanges.

||QFII|RQFII|Stock Connect|
|---|---|---|---|
|Investor Restrictions|Foreign institutions should meet specific conditions to apply:<br>- Minimum years of experience operating in the fund business<br>(relaxed for fund management institutions and insurance<br>companies in 2006).<br>- Minimum of capital managed in the most recent fiscal year<br>(relaxed for fund management institutions and insurance<br>companies in 2006).<br>- Stable finances and good credit standing.<br>- Must not receive any penalty by regulators in its country over<br>the last three years.<br>- The country of the applicant must have a legal and regulatory<br>system and its securities regulator must have a relationship with<br>the CSRC.<br>- Others.|Foreign institutions eligible to apply are management<br>companies, securities companies, commercial banks,<br>insurance companies, and financial institutions whose<br>places of registration and mainly business are in one of<br>the countries in the program. Additionally, there are<br>some basic requirements the investor should meet to<br>apply for a quota:<br>- Sound financial condition.<br>- Have an effective governance structure and internal<br>control system.<br>-Have no adverse records of material regulatory<br>breaches in the last<br>three years.<br>- Others.|Foreign retail and institutional investors can trade<br>securities listed on SSE and SZE (except for STAR and<br>ChiNext securities) under the connect program. Trading<br>of STAR and ChiNext stocks is limited to institutional<br>professional investors only.|
|Investment Restrictions|The QFII program permits to invest in:<br>- Convertible and corporate bonds.<br>- Stocks and treasuries listed on Chinese stock exchanges.<br>- Warrants (added in 2006).<br>- Investment funds (added in 2006).<br>- Fixed income instruments traded in the inter-bank bond market<br>(added in 2012).<br>- Futures, depositary receipts, and derivates (added in 2020).<br>Investors in the QFII program can participate in the issuances of<br>new shares (added in 2006).<br>The number of company shares held by QFII investors is also<br>restricted. The ratio of an individual investor (all investors<br>combined) must not exceed 10 percent (20 percent). In 2006 the<br>positions classified as "strategic investments" were excluded and<br>in 2012 the limit for the sum of investors was set at 30 percent.|Like QFII, the investment scope was initially limited to<br>stocks and debt instruments. Thereafter, it expanded to<br>warrants, futures, derivates, and more. Furthermore,<br>RQFII investors can participate in IPOs, SEOs, and<br>bond issuances. The restrictions on the number of<br>shares of a company held by an individual foreign<br>investor or the sum of all of them are the same as for<br>the QFII.|The investment scope is focused on a selective group of<br>A shares listed in SSE and SZE (connected stocks):<br>- Shanghai Connect: All the constituent stocks of the<br>SSE 180 Index and the SSE 380 Index, and all the SSE-<br>listed A shares that are not included as constituent<br>stocks<br>of<br>the<br>relevant<br>indices,<br>but<br>which<br>have<br>corresponding H shares listed on Honk Kong SAR,<br>China, except the SSE-listed shares which are not<br>traded in RMB and SSE-listed shares which are under<br>risk alert.<br>- Shenzhen Connect: all the constituent stocks of the<br>SZSE Component Index and the SZSE Small/Mid Cap<br>Innovation Index which have a market capitalization of<br>not less than RMB 6 billion, and all the SZSE-listed A<br>shares which have corresponding H shares listed on<br>Honk Kong SAR, China, except the SZSE-listed shares<br>which are not traded in RMB and SZSE-listed shares<br>which are under risk alert<br>The Connect program only supports the secondary<br>market.<br>Foreign<br>investors<br>are<br>not<br>available<br>to<br>participate in IPOs through this channel.|
|Quota Restrictions|The QFII program started with a quota of 4 billion U.S. dollars.<br>From the launch of the program to 2019, there have been five<br>updates that increased the limit to 300 billion U.S. dollars. In 2020<br>the quota limit was abolished for the QFII.|Because the RQFII was not a global program, the<br>quotas were allocated for each specific country. When<br>the program was launched the unique quota was for<br>Hong Kong SAR, China with 20 billon renminbi and in<br>2019 there were quotas for more than ten countries<br>reaching 1990 billon renminbi. In 2020 the quota limit<br>was abolished for the RQFII.|When the Shanghai Connect program was launched<br>there was an aggregate foreign investors' quota of 300<br>billion renminbi but in 2016 it was abolished.<br>On the other hand, there is a daily quota on buy orders<br>for both connect programs which is still active. It was<br>initially set at 13 billion renminbi and in 2018 was<br>increased to 52 billion renminbi. This quota is applied<br>on a "net buy" basis allowing investors to sell their<br>cross-boundary securities or input order cancellation<br>requests regardless of the quota balance.|