Llinks Review | Policy Outcomes of the 9th UK-China EFD
By Sandra Lu
The 9th UK-China Economic and Financial Dialogue (“EFD”) was closed on December 16, 2017. The 9th EFD marked wide ranging and positive progress in areas including macroeconomic policies, trade, investment, finance, industrial strategies, Belt and Road Initiative and third-party markets. The outcomes in financial services sector, especially the asset management area, are particularly tremendous, whose details have been set out below.
1. To Expand Market Entry in the Public Funds Sector
In an effort to implement the plans on opening China wider to the outside world as set out during the 19th CPC National Congress, China has made the following decisions: raise the cap on direct or indirect equity ownership by single or multiple foreign investors in joints ventures fund management company to 51%, and there will be no equity cap limit on such investments three years after the implementation of aforementioned measures.
The above commitment is in alignment with that made by the Ministry of Finance of China on November 10, 2017.
The UK side welcomes this commitment and looks forward to further details on approval criteria and implementation timetable. Actually the whole market and its players are looking forward to such details as well.
2. Shanghai-London Stock Connect is Highly Anticipated to be Launched
(1) Both sides welcome the progress that has been made on preparation for viable rules and arrangements for the implementation of the Shanghai-London Stock Connect, conducted by the London Stock Exchange and Shanghai Stock Exchange. Both sides also welcome China and UK regulators to work on mutually agreed regulatory arrangements on cross-border securities enforcement cooperation, accounting standards and auditing supervision under the framework of the Shanghai-London Stock Connect.
(2) Both sides agree to accelerate the final preparations and to review, when conditions permit, the timeline for launching the London-Shanghai Stock Connect.
(3) Both sides agree to further research into realising the connect by listing on each other’s market depository receipts that represent shares from eligible issuers of listed companies in both markets.
3. Feasibility Study on Bond Connect
The UK welcomes the opening of China’s bond market to international investors and the launch of the Hong Kong-Shanghai Bond Connect Scheme. Both sides welcome the establishment by National Association of Financial Market Institutional Investors (NAFMII), International Capital Markets Association (ICMA) and City of London of the International Working Group to promote research and cooperation on bond market opening and development.
4. To Improve Quota Management System of QDII
China will continue to work towards reform to improve the management of the QDII quota system, including harmonizing the scheme across domestic regulators. In the meanwhile, the UK welcomes China’s plan to revise overseas investment regulations for insurance funds to increase the scope of overseas investment.
The approval of QDII quota has been suspended since 2015. The above commitment provides reasonable anticipation of the new QDII quota and its new management policy.
5. To Remove foreign ownership Limit in Chinese Listed Companies
Except for the special administrative measures adopted by the State, China agrees not to put other restrictions on the foreign ownership limit, both for single investors and for all foreign investors in total, in listed companies.
According to the currently effective PRC laws and regulations, a single foreign investor shall not hold more than 10% shares in a company listed in China and all foreign investors shall not hold more than 30% shares in a company listed in China through QFII, RQFII or Stock Connect between Mainland China and Hong Kong. The foresaid commitment made by China means that China will remove limits on foreign ownership of Chinese listed companies. The commitment shall be implemented through legislation amendment.
6. Improve QFII and RQFII Schemes
China will further improve QFII and RQFII schemes, and encourage UK investors to invest in Chinese capital markets, including the Chinese bond markets.
The deputy Chairman of CSRC delivered a speech on November 16, 2017, who mentioned that one of the current tasks of CSRC was to improve QFII and RQFII regulations and policies, which echoed the foresaid EFD outcome regarding the QFII and RQFII Schemes.
7. Feasibility Study on Mutual Recognition of Funds
Both sides welcome the communication between FCA and CSRC to facilitate mutual understanding on asset management industries and regulatory regimes in both markets and agree to deepen cooperation in this area by launching a feasibility study on mutual recognition of funds.
It can be found that, different from Shanghai-London Stock Connect, even though the mutual recognition of funds scheme has been put on the agenda of financial cooperation between UK and China, it is still on the stage of feasibility study.
8. Encourage Private Fund Manager Registration and Private Fund Filing
(1) CSRC welcomes the registration of Winton Capital, Schroders and Aberdeen Standard Investments with AMAC as Private Fund Managers.
(2) CSRC welcomes Man Group’s registration of products as a private fund.
(3) CSRC welcomes the application from Eastspring Investment to establish an investment management WFOE in Shanghai.
(4) CSRC welcomes foreign invested private fund management WFOE to apply for private fund management business subject to meeting criteria as outlined in the private fund management regulations. Both sides agree to deepen regulatory and business engagement to explore further opportunities for UK private fund management business in China.
9. Explore Fund Custodian Business
Both sides agree to strengthen cooperation and explore increased participation of qualified foreign firms in domestic and cross-border custodian business. China welcomes qualified UK-invested banks in China to apply for custodian licence. China will review related regulations, including giving appropriate consideration to the parent company’s overseas assets.
CSRC released the Admission Measures on Securities Investment Fund Custodian Business in 2013. But there has been no WFOE bank successfully obtaining the custodian license ever since. The main reasons are that the commercial bank applying for the fund custodian license and settlement license shall meet the requirement of the net assets more than RMB 40 billion in the last three fiscal years”. Currently there are few WFOE banks meeting such requirement. According to the foresaid commitment made by China, Chinese regulators welcome UK invested bank to apply for fund custodian license and would like to prudently consider the overseas assets of the parent companies of the WFOE bank. If that works, there will be a large number of WFOE banks in China who meet the financial requirement of the fund custodian license.
10. Initiate the Industry Education and Research Cooperation in Asset Management Sector
The UK government and China government support the Alternative Investment Management Association (AIMA) and Asset Management Association of China (AMAC) to work together under MOU of AMAC and AIMA signed in 2014 and launch education program and research projects focusing on capital market and asset management industry.
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