The Measures for the Administration of Securities Investment within the Territory of China by Qualified Foreign Institutional Investors was adopted by the China Securities Regulatory Commission at its 170th Chairman Meeting, by the People's Bank of China at its 4th Governor Meeting and by the State Administration of Foreign Exchange at its 5th Director Meeting. The measures will become effective as of 1 September 2006.

The Measures require that any QFII should appoint a domestic commercial bank as its custodian to manage its assets, and entrust a domestic securities firm to conduct its securities exchange activities within the territory of China, and when making an application for the qualification as a QFII, the applicant must meet the following conditions: (1) The applicant is in sound financial conditions and good credit standing, and meets the requirements provided by the CSRC on assets size and other conditions, while its risk control indexes meet the provisions of the law of the country or region and the requirements provided by the securities regulatory authority where it is located; (2) the employees of the applicant must meet the relevant requirements on professional qualifications provided by the country or region; (3) The applicant has sound governance structure and perfect internal control system with any and all business activities being rule-compliant, and has not been imposed with any substantial penalty by the regulatory authorities of the country or region where it is located over the last three years prior to the application; (4) The country or region where the applicant is located has perfect legal and regulatory system, and its securities regulatory authority has signed the MOU with the CSRC and is maintaining the relationship of efficient regulation and cooperation; and other conditions as may be provided by the CSRC according to the principle of prudential regulation.

These measures gives priority to the institutions managing any of the long-term funds such as pension fund, insurance fund, mutual fund, charity fund that is in conformity with the requirements set out in these Measures for the purposes of encouraging medium and long-term investment.

These measures also prescribe the conditions that a custodian should meet, which include:  having a specific assets custody department;  having paid-in capital no less than RMB 8 billion; having sufficient professionals who are familiar with custody business; having the conditions for safe management of the assets of the QFIIs; having the capability for conducting safe and high-efficient registration settlement and delivery;  having the qualification as a designated foreign exchange bank and the qualification for engagement of RMB business; No record of material breach of the foreign exchange regulations in the latest 3 years. Meanwhile, a domestic branch of a foreign-invested commercial bank will be entitled to apply for the qualification as a custodian if it has continually conducted business within China for more than 3 years, and to this regard, the conditions for the amount of its paid-in capital shall be calculated as per those of its overseas head offices.

Upon the implementation of these Measures, the Interim Measures for the Administration of Securities Investment within the Territory of China by Qualified Foreign Institutional Investors jointly promulgated by the CSRC and the PBOC on 5 November 2002 was repealed at the same time.

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