Zoe Qiao
On May 27, 2016, the Shanghai Headquarters of People’s Bank of China (hereinafter, the “Central Bank”) promulgated the Implementation Rules for the Recordation Administration of Interbank Bond Market Investments by Foreign Institutional Investors (hereinafter, the “Implementation Rules”). On the same date, the State Administration of Foreign Exchange promulgated the Circular of the State Administration of Foreign Exchange on Foreign Exchange Administration Issues concerning Interbank Bond Market Investments by Foreign Institutional Investors (hereinafter, the “Circular”). Both the Implementation Rules and the Circular provide operating requirements for further deregulation of the domestic interbank bond market on the basis of Announcement (2016) No. 3 of the People’s Bank of China.
Deregulate investment in the domestic interbank bond market by of foreign institutions has been an ongoing policy of the Central Bank since 2011. Previously, however, such investment (not including QFIIs and RQFIIs) required the review and approval of the Department of Financial Market of the People’s Bank of China. It was not until February 2016 that the Central Bank issued Announcement (2016) No. 3, which confirmed the change of the approval system into the recordation and registration system. To wit, a foreign institutional investor may file for recordation with the Shanghai Headquarters of the Central Bank through an interbank market settlement agent with international settlement business capabilities.
The Shanghai Headquarters of the Central Bank specifically stipulates in the Implementation Rules that when entering the interbank bond market for the first time with the recordation handled by a settlement agent, an institutional investor should submit the Recordation Table for Investment in the Chinese Interbank Bond Market by Foreign Institutional Investors as attached to the Implementation Rules, as well as the settlement agency agreement. A foreign institutional investor that has already entered the interbank bond market is not required to file for recordation again. The Shanghai Headquarters of the Central Bank will accept recordation applications and issue recordation notices pursuant to the required conditions and procedures. A recordation notice shall be valid for three months after its date of issuance.
The Circular from the State Administration of Foreign Exchange sets out the rules regarding foreign exchange registration matters and stipulates that the foreign institutional investors shall proceed with the foreign exchange registration through a settlement agent while the recordation notice issued by the Shanghai Headquarters of the People’s Bank of China is still valid.
The Circular does not impose a limit or total limit of investment for a single institution, even though it requires the ratio of cumulative outbound foreign exchange remittances to RMB capital to be basically consistent with the ratio of cumulative inbound foreign exchange remittances to RMB capital, within a range of 10%.
The Implementation Rules and the Circular both came into effect on the day of their promulgation.