CHINA WITH QFII.com Site aims to  highlight information concerning major changes in China's capital market system, with the enactment of QFII, which creates potential for major investment opportunity 

 

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Rapidly growing China is making a real attempt to modernize its banking and financial systems.  The main attempt at this is the passage and implementation of the QFII Act which will allow foreign investors to invest in Chinese securities, with the thinking that  foreign investment institutions will spur on better and more effective functioning.  

QFII Act- Qualified Foreign Institutional Investor Act (enacted 12/01/2002)

Firms picked as QFIIs [ Citigroup, HSBC, UBS, Nomura Securities, Deutsche Bank, Morgan Stanley, Goldman Sachs, JP Morgan as of 12/31/03] (starting April 2003,  with investment opportunities beginning in June 2003) can invest in the range of US$50-800MM in any of the following:

 

Wen Jiabao Puts Forward 5 Principles for Development of Sino-US Economic and Trade Relations

Foreign-invested Banks Issue Bank Cards

5 Measures about Opening up of China Banking Industry

QDII to Be Launched Next Year

CBS. MarketWatch's excellent series of articles on important events happening in China in a series called China Play

Consumption play! Commentary: Asia could be world's new growth engine - CBSMarketWatch 

Citibank in First Deal in Transfer of 
A Share
to Foreign Investor

China's SAFE Reiterated 3 Contents of Exchange Rate Policy

Warburg Pincus LLC Invests in China's Private Enterprise

China told not to relax yuan limits by credit rating agencies

Big hopes for filling China's garages as sales of cars and trucks are rocketing

Will China revalue the Renminbi? Commentary: There are good reasons why it won't

Outsourcing: Make Way for China - BusinessWeek

Citibank gets nod to offer forex to Chinese

A Rising Tide for Floating the Yuan

Citigroup GTS assists both UBS and Nomura in their QFII applications

HSBC Seeks $100 Million China QFII Initial Investment Quota

Franklin Templeton, Prudential form China-Foreign Joint-Ventured Fund Management Cos

China NBS: 6 Major Problems in Economic Development Note-worthy

Auto Product Import to Exceed US$10 Billion This Year

Foreign Investment - A Major Force of Venture Investment in China

More News!

HSBC Speech
Some very worthwhile comments and perspectives made in a speech by Sir John Bond, Group Chairman, HSBC Holdings plc

Shanghai Listings
Shanghai stock exchange companies listed with market cap, industry class and 24 mos HI-LO

Thoughts
Highlights taken from speeches or articles that Chinese Govt. officials  and prominent business persons have had published.

Other Markets
Description and facts about other important China financial markets, mainly the Cash market, Fgn. Exchange market  and the Bond market

Export IT China
Excerpts and summary from March 2003 U.S. Int'l Trade Admin. report which analyzes issues and trends in IT, telecommunications, Internet and e-commerce industries 

News
Current important and timely news events and articles of interest relating to China's capital markets 

ChinaNow
Page that promotes possible investment in China fund

What they can invest in – RMB (Renminbi) denominated shares listed on China’s stock exchanges, or A-Shares; Treasuries listed on stock exchanges; convertible bonds and enterprise bonds, and other financial instruments as approved by the CSRC (Chinese Securities Regulatory Committee)

What must be their qualificationsFund Mgmt Cos. – 5 yrs. experience, assets under mgmt of at least US$10bn; Insurance and securities firms – 30 yrs. experience, paid-in capital > US$1bn, Assets under mgmt > US$10bn;  Commercial Banks – Rank top 100 in total asset value, Assets under Mgmt > US$10Bn.

Custodial Banks  – Mainland Banks - Bank of China (BOC), China Construction Bank (CCB), Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC), Bank of Communication (BOCOM), and China Merchants Bank. Foreign approved banks -Citigroup, HSBC and Standard Chartered. 

QFII will encourage currency trading.  It opens a new door as it represents a real step toward convertibility of the unit for capital account items. 

QFII issues – stringent qualifications might limit QFII participation in the near term, but deregulatory amendments to the measures are expected to follow after the initial feedback period.

 

 

 

CHINA's EQUITY MARKETS   Statistics Comparison

China today has a domestic market capitalization base of about US$530Bn.

Today, China's leaders grapple to cope with bank financial assets in an amount of US$2 trillion (200% of GDP) as they look for greater breadth and depth in the diversity of investment avenues. 

China's investor base is its greatest asset, leading to China's 35% + savings/GDP ratio, which consistently ranks among the highest in the world.  Private savings are now in excess of US$1.2  trillion.

China’s Equity Markets are considered risky due to:

  • Speculative players – (many doubt the authenticity of the financial statements of listed firms and rely on rumors.)

  • Too many non-tradeable shares (shares owned by the government or govt. agencies).  A study/survey taken at the end of 2001 showed that only about 33% of the shares listed on the two exchanges are considered marketable by the authorities.  

  • Rich valuations

  • Not enough disclosure information

 

China's Population: 1.28Bn people

U.S. Population: 260MM (20% of China's)

NYSE Market Cap: $9.04 Trn

Listed Companies: 2784

NASDAQ Market Cap: $1.72 Trn

Listed Companies: 3765

Shanghai Stock Exchange (sse.com.cn)

Market Cap: $320 Bn (28.7% of GDP)

Listed Companies: 724

ShenzhEn Stock Exchange (sse.org)

Market Cap: $210 Bn (17.9% of GDP)

Listed Companies: 508

 

Total U.S. Exchange Market Cap: $10.76Trn

U.S. Exchange Listed Companies: 6549

Total China Market Cap$530 Bn

China Exchange Listed Companies: 1232

 

 

HOPED FOR ENHANCEMENTS     SECURITIES LAWS   QFII Process and Restrictions

The concept of the passive private investor is still lacking and will likely be the subject of future equity market reforms ( fix for this, which they already have but may not run efficiently are aggressive, effective mutual funds to sell people on the idea of professional management so that they don't have to be frantic investors. From another aspect, convertible bonds are great as they give the investor a guaranteed annual income (return) on their investment while also providing the investor with the potential for capital gains if the company does well and reaches point where it has to convert the bonds to shares) 

One key ongoing development is to upgrade the investment skill set in China. The concepts of value investing, benchmarking, and passive investments are being introduced. 

The medium-term introduction of much larger institutional investors such as pension and insurance funds is having an important impact. Watch for more listings of companies beyond the traditional manufacturing firms, such as various service industries 

Through QFII and future participation of foreign investment institutions, officials are hoping for progressive investment techniques to be accepted

 

 In China, the Companies Laws and the Securities Laws are the main regulatory tools used by corporate securities issuance. 

The Companies Laws - set the groundwork for share ownership by providing a methodology on how firms would issue stock via the Initial Public Offering. IPOs must satisfy the following conditions:  1 - the previous issue of shares has been fully subscribed and at least 1 year has elapsed since that issue;  2- the company has been continuously profitable for the last 3 years and is able to make dividend payments to shareholders;  3- the company's financial and accounting documents contained no false reporting over the last 3 years and  4 - the projected rate of profits equals or exceeds the rate of interest on bank deposits for the same term. 

The 1999 Securities Law further fine-tunes issuance standards for Chinese equities, requiring firms to submit proper documentation to the relevant authorities, directing the SCRC to decide on the application process and defining the role of securities companies in issuance.

 

1. Interested financial institution applies to the CSRC (Chinese Securities Regulatory Committee) with the proper documentation

2.  The CSRC will review applications and determine approved and accepted institutions to whom they will issue Securities Investment Licenses

3.  Approved financial institution then sends further application to SAFE (State Administration  for Foreign Exchange)  through their custodial bank which will determine the institutions' quota which controls the dollar amount of assets the institution may invest

4.  Financial institution picks a Custodial Bank from among qualified group and deposits its investment, which is exchanged into Renminbi (yuan)

5.  Financial institution then selects a qualified securities dealer through which investments will be made

RESTRICTIONS

One QFII cannot own more than 10% of shares of one company;  One company cannot have more than 20% of its shares owned by QFIIs; Most QFII’s can apply for withdrawal after 1 years time, at which time maximum withdrawal is 20% at intervals greater than 1 month / Closed-end funds (being that they may have received favorable treatment when Quota decisions are made) cannot withdraw funds for a 3-year time period; a QFII who has been invested for at least 3 mos. may transfer their investment quota to another QFII or to qualifying applicants.

 

 

Description of Other Pages on this Site

HSBC Speech Thoughts News Other Markets Shanghai Listings Export IT China ChinaNow
Some very worthwhile comments and perspectives made in a speech by Sir John Bond, Group Chairman, HSBC Holdings plc Highlights taken from speeches or articles that Chinese Govt. officials  and prominent business persons have had published. Current important and timely news events and articles of interest relating to China's capital markets  Description and facts about other important China financial markets, mainly the Cash market, Fgn. Exchange market  and the Bond market Shanghai stock exchange companies listed with market cap, industry class and 24 mos HI-LO Excerpts and summary from March 2003 U.S. Int'l Trade Admin. report which analyzes issues and trends in IT, telecommunications, Internet and e-commerce industries  Fund that proposes to invest in China

 

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