Market Profiles

China B shares

RBC IS operates a segregated account structure in this market.

Whilst no documents are required in this market, it is prudent to hold on record client documents to show the legal existence of the client in case the agent or the country regulator requests it.

For further information or support around accessing this market, please contact your RBC IS representative.

Client Notice

Please note not all financial instruments and exchanges listed below are available as an RBCIS product offering. Please consult our Terms & Conditions or reach out to your RBCIS representative for further details.

Shenzhen Stock Exchange (SZSE)
There are two stock exchanges in mainland China: the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE). The two exchanges are not cross-linked and the stocks listed at the two exchanges are mutually exclusive. The SZSE began operations in April 1991 and is wholly state-owned. Similar to its counterpart in Shanghai, the exchange deals in both A and B shares. China Southern Glass launched the first B-share issue in March 1992. The SZSE offers tradable equities, including A and B shares, listed open-end funds (LOFs), closed-end funds, exchange traded funds (ETFs), warrants, treasury bonds, bond repos, and corporate/enterprise bonds. All these instruments operate in a scripless environment. 

The B-share market is open to foreign investors and domestic individual investor while A shares, bonds, LOFs, closed-end funds, ETFs and warrants are open to domestic institutional/individual investors, residents of Hong Kong, Macao and Taiwan living in the mainland, and Qualified Foreign Institutional Investors (QFIIs) and RMB qualified foreign institutional investors (RQFII). According to the amendments to Measures for the Administration of Securities Registration and Settlement and Measures for the Administration of Equity Incentives of Listed Companies released by the China Securities Regulatory Commission (“CSRC”) on 15 August 2018, the following 2 types of foreign individual investors are allowed to open securities accounts to lawfully invest in China A-share market: 1) foreign individuals who work onshore; 2) foreign employees of A-share listed companies who work offshore and participate in the company’s equity incentive compensation plans. Bond repos currently are only allowed to be traded by domestic institutional/individual investors.

(R)QFIIs can participate in Primary Market (through initial public offerings) as well as Secondary Market trading. Each (R)QFII must appoint a domestic securities company to execute trades on their behalf. Up to three domestic securities companies per market (Shanghai and Shenzhen) per (R)QFII may appoint. However, due to current system constraint of the Stock Exchange, one (R)QFII investor ID can only appoint one broker in each market.

Trades are executed on the trading floor or off-floor via computer terminals linked to brokers.

For B share transactions, a foreign investor located in the People's Republic of China (PRC) may place buy or sell orders directly with an authorised domestic broker. If the foreign investor is based outside the PRC, they need to place the buy/sell orders with a foreign broker who holds a special seat in the exchange, or through an approved foreign broker who will relay the order to the authorised domestic broker for execution. 

For A share transactions, a RQFII may place buy or sell orders directly with a domestic broker. For each transaction, the broker will issue a sale or purchase confirmation to the investor. A computerised system matches trades based on best price, time and sequence. SZSE securities are not interlisted with the Shanghai Exchange.

ISIN (International Securities Identification Numbering): CSRC introduced new ISIN codes to the China market effective from October 12, 2007. The China Securities Depository and Clearing Corporation Limited (CSDCC) is responsible for numbering ISIN codes to the securities listed in China. ISIN codes are used by many overseas institutional investors but are not officially recognised. 

Other: the SSE uses local codes.

People’s Bank Of China (PBOC): is the central bank of China. Its responsibilities include: formulating and implementing monetary policies; issuing Renminbi, China's currency, and managing its circulation; holding, managing and operating state foreign exchange reserves and gold reserves; operating the state treasury; safeguarding the normal operation of payment and clearing systems; compiling financial statistics, conducting financial investigations and making forecasts; and engaging in domestic and international financial operations.

The State Administration of Foreign Exchange (SAFE): responsible for the administration of foreign exchange, balance of payment, external credit and debt, cross-border capital flows, other matters as assigned by the State Council and the People's Bank of China.

China Banking and Insurance Regulatory Commission (CBIRC): CBIRC was announced to merge by China Banking Regulatory Commission (CBRC) and China Insurance Regulatory Commission (CIRC) in March 2018. The new commission will enhance oversight of both banking and insurance industries by combining responsibilities of supervising the banking and insurance industries, preventing and dissolving financial risks, and protecting financial product consumers’ rights.

China Securities Regulatory Commission (CSRC): the direct regulator for the mainland China securities market and the Shenzhen Stock Exchange (SZSE) and oversees the entire securities industry in mainland China. As an independent regulator, it is responsible for enacting and examining all securities-related laws, rules and regulations, approving new issuances and corporate actions, as well as safeguarding the interests of investors in mainland China by mitigating any illegal, dishonourable or improper conduct in relation to securities trading. The CSRC does not fund the operations of the SZSE.

The CSRC’s Shenzhen Office: acts as co-ordinator and helps the CSRC regulate the operations of the SZSE, implement market rules and regulations, and investigate any irregularities identified.

Securities are traded in a scripless environment, in a registered form.

The minimum tick price of Shenzhen A shares is RMB0.01, and RMB0.001 for bonds, funds and warrants.
The minimum tick price of Shenzhen B shares is HKD0.01.

Daily price fluctuation limit is +/-10% on closing price of previous day for A shares and funds while stocks under special treatment (ST shares or *ST shares) are subject to a price limit of 5%. 

The daily price fluctuation limits of warrant is set at:
Warrant upper limit price on trade day (T day) = (Warrant closing price on T-1) + [(The upper limit price of the
underlying stock on T) – (The closing price of the underlying stock on T-1)] × 125% × Warrant exercise ratio
Warrant lower limit price on trade day (T day) = (Warrant closing price on T-1) - [(The closing price of the
underlying stock on T-1) - (The lower limit price of the underlying stock on T)] × 125% × Warrant exercise ratio

For securities with a ST and *ST sign and S stocks (i.e. stocks of companies that have not completed the non-floatable share reform), daily price fluctuation limit is +/-5%.

* Shenzhen B-shares, which settle in HKD, continue to trade on Hong Kong holidays but settlement is deferred until the next working day.

A shares- RMB, B shares- HKD

In China, all non-listed shares including delisted B shares can apply to be transferred in the Over-the-Counter (OTC) market. For delisted B shares, the transferring currency is USD, regardless of which stock exchange the shares were previously traded on before delisting. Only authorised local securities brokers (broker) can act as the agent to handle the transfer operations for delisted shares. 

The shares of delisted companies shall be compulsorily moved to the over-the-counter (OTC) market for trading. A new local stock code will be issued for the delisted stock. However, all the issued shares of the listed companies will continue to be safe-kept in CSDCC after being delisted.

The daily price fluctuation limit is restricted to 5% above or below the closing price of the previous transfer day and the first bidding price is based on last closing price before delisting with an upper limit at 5% and no bottom limit. 

Trading hours: 
The OTC shares can normally be transferred every Monday, Wednesday and Friday (09:30 -11:30 and 13:00 -15:00). Furthermore, if the delisted company meets the following requirements, the OTC shares can be transferred five days a week from Monday to Friday (09:30 -11:30 and 13:00 -15:00):
1. fulfil the information disclosure requirement 
2. the net assets of the company traded are positive or they are making a profit
3. CPA has no qualifications or comments in the company's latest annual report.

Book-Entry: 
A share market for RQFIIs

Equity settlement
A shares are settled in RMB. After the market closes on TD, the CSDCC Shenzhen Branch provides securities clearing data for each custodian in accordance with the trading data from the stock exchange and other data of the RQFIIs under each custodian. The CSDCC Shenzhen Branch treats the securities clearing data as settlement instructions. The custodian obtains this clearing data via the CSDCC Shenzhen Branch’s settlement system and settles the transactions accordingly. The CSDC Shenzhen Branch irrevocably moves securities on a trade by trade basis during the evening of TD via book entries between securities accounts of the investors. By 16:00 on T+1, cash settlement is netted at the custodian level via the designated clearing reserve fund account at one of the CSDCC Shenzhen Branch’s designated cash clearing banks. 

Please refer to the settlement flow chart below for an overview of the settlement cycle. 

On trade date (T+0), (R)QFII places an order with its designated local broker at the Shanghai or Shenzhen Stock Exchange (each (R)QFII can deal through up to three brokers in each exchange. However, due to current system constraint of the Stock Exchange, one (R)QFII investor ID can only appoint one broker in each market.) Prior to market opening on T, the broker will check the availability of adequate securities (or cash) with the custodian bank. In the case of a sale instruction, the trading system also checks that adequate securities of the appropriate description are available in the account of the (R)QFII at the depository to prevent overselling or short selling.

At the end of the day, the CSDCC will transfer the securities from the seller's account to the buyer's account according to trade data provided by the exchanges. Shares purchased are automatically registered in the name of the buyer. 

Around 18:00 on T+0, CSDCC branches in Shanghai and Shenzhen advise the local custodian in Shanghai of details of trades executed on their accounts. Once the confirmation is received by the CSDCC, the custodian bank will reconcile the details with settlement instructions received from the client. Whenever there is unmatched, missing instruction or incomplete information, the custodian will inform (R)QFII and the (R)QFII’s designated broker for settlement in accordance with tripartite agreement reached among them. If there is no discrepancy, the custodian bank will settle the trade and send the settlement confirmation to clients via MT544-MT547. Otherwise the custodian bank will contact the broker and/or (R)QFII/global custodian bank with the difference and the pre-agreed error rectification procedure will be activated. Clients will be informed of the difference in trade amount between the broker execution report and the CSDC amount. If the (R)QFII and its broker do not agree on the change in the settlement amount, the custodian bank will settle the trade as per CSDCC's record received on T. 

The CSDCC will notify the expected net cash payment by the end T+0, payable on T+1. On T+1, a custodian with a net payable position must transfer funds to its clearing account with its domestic clearing bank by noon on T+1. The clearing bank will transfer funds from this account to the CSDCC clearing reserve account by 15:00 on T+1. The CSDCC will credit the custodian's clearing accounts with net receivable positions before 17:00 on T+1. 

Fixed Income Settlement
Currently the following fixed income instruments are available in China A-share market:

• Convertible bond
• Government bond
• Policy financial bond
• Local government bond
• Enterprise bond
• Corporate bond
• Detachable bond
• Exchangeable bond
• Private placement bond
• Bond repurchase agreements (repos) (currently RQFIIs are not allowed to engage in repo transactions).

Shenzhen Market
Purchase of bonds:

The settlement process of government bonds, local government bonds, policy financial bonds, convertible bonds and corporate bonds, enterprise bonds, detachable bonds matching the criteria of netting settlement is the same as A-share equity.

Other kinds of debt instruments which are not applicable to netting settlement fall into non-guarantee settlement.  Settlement of both securities and cash take place on T+0 if it’s Real Time Gross Settlement. CSDCC will not handle nor shall guarantee cash settlement and (R)QFIIs be responsible for making their own credibility evaluation of market maker for controlling counterparty and settlement risks.  If settlement instructions cannot reach sub-custodian by 12:00pm on T day or there is shortage of fund in (R)QFIIs corresponding cash account, sub-custodian will not settle the transactions which will then be failed.

Sale of bonds:

For all kinds of debt instruments applicable to netting settlement, securities are settled on T and cash is moved on T+1 (same as that of A shares).

Other kinds of debt instruments which are not applicable to netting settlement fall into non-guarantee settlement.   Settlement of both securities and cash take place on T+0 if it’s Real Time Gross Settlement.  CSDCC will not handle nor shall guarantee cash settlement and (R)QFIIs be responsible for making their own credibility evaluation of market maker for controlling counterparty and settlement risks.

B shares
B shares are settled in HKD. Trade details are confirmed between the exchange and broker on T. The clearing system prematches all trades on T+2. Share and cash positions are covered by brokers and custodians on T+3. Automatic book-entry settlements are processed by 12:00 on T+3 at CSDCC. Same-day turnaround trades for B shares are prohibited by the CSRC, but turnaround trades of purchases on TD for sales on T+1 or T+2, with settlement on a first in, first out basis, is permitted. Registration is executed upon settlement.

B-share trading will take place on the SZSE on Hong Kong holidays. If T+3 falls on a local holiday or a Hong Kong holiday, SD will occur the next business day. There will be no change to settlement if the holiday falls on T+1 or T+2. 

A-shares
Covered short selling is permissible to QFIs in A-share market collective biding system. In SZSE, the position will be checked automatically by the system before trade execution. The stock exchange trading system will reject sales orders where the investor does not have sufficient share in their account. When investors sell the borrowed securities, they shall repay from T+1 onwards. 

Covered short selling was launched in March 2010 for a limited number of stocks through the margin trading and securities lending pilot program. However, QFIIs/R-QFIIs are not allowed to participate.

B-shares
Short selling is not allowed in B-share market.

Turnaround transactions, for example buying on trade day (T), but selling on T+1 or T+2, are possible in Shenzhen B share market and are settled on a first in, first out basis.

Same-day turnaround trades of A share are prohibited. However, same-day turnaround trades are permitted for bond ETFs, exchange Money Market Funds (MMF), bonds (excluding convertible bonds) and warrants trading.

Same-day turnaround trades for B share are not allowed.

CSDCC – Shanghai Branch: The CSDCC acts as a central depository, clearing house and registrar for equities including A and B shares, funds, closed-end investment funds, government bonds and corporate bonds in the Shenzhen market. All securities are dematerialised at the CSDCC Shenzhen branch and the use of the central depository is mandatory in mainland China.

CSDCC – Shanghai Branch: The China Securities Depository and Clearing Corp Ltd (CSDCC) is a non-profit making entity established on March 30, 2001. It was created from a merger of the previous central depositories, the Shanghai Securities Central Clearing and Registration Corporation (SSCCRC), established in March 1993, and the Shenzhen Securities Central Clearing Co Ltd (SSCC), established in September 1995.

With effect from October 1, 2001, the legal title of the SSCCRC and the SSCC was changed to the CSDCC, Shanghai branch (CSDCC Shanghai) and CSDCC, Shenzhen branch (CSDCC Shenzhen) respectively as two branches of the CSDCC. The CSDCC is funded by the Shanghai and Shenzhen stock exchanges with a total registered capital of RMB1,200 million. It is divided into ten departments, namely administration, registration and custody, settlement, technology development, finance, legal, fund business, information and statistics, system operation and business development. The company, which is based in Beijing, reports to and is directly supervised by the China Securities Regulatory Commission (CSRC) headquarters. The former two securities clearing companies affiliated to the Shanghai and Shenzhen stock exchanges have been integrated into the new company as its branches.

The CSDCC acts as a central depository, clearing house and registrar for equities, including A and B shares, funds, closed-end investment funds, government bonds and corporate bonds.

All B-share trades are settled against Hong Kong dollars through the book-entry settlement system at the CSDCC Shenzhen with all underlying securities dematerialised. At present, the 'Operating Rules for the Clearing and Registration of Special Reminbi-Denominated Shares', approved by the Shenzhen Stock Exchange, regulate the operation of the CSDCC Shenzhen.

The CSDCC Shenzhen is responsible for:

• Establishment of securities accounts and settlement accounts
• Safekeeping and transfer of ownership of securities
• Entry of securities holders' details onto the register of securities
• Settlement and delivery of securities listed on the stock exchange
• Distribution of shareholders' rights as entrusted by securities issuers
• Handling enquiries on these functions
• Other functions and business as approved by the CSRC.

The use of the central depository is mandatory. Brokers and custodian banks are eligible to become clearing participants in the CSDCC Shenzhen's clearing system. To apply, an institution has to complete the 'Clearing Participant Application Form' and contribute the appropriate amount, namely the guarantee fund, to the CSDCC Shenzhen's designated account. It should also obtain an instrument of ratification from the CSRC before becoming a depository participant. The depository will then confirm approval of the institution by sending the 'Clearing Participant Confirmation Letter'.

In the Shenzhen market, the transfer fee levied by the CSDCC is 0.001% on consideration, payable by the both buyer and the seller upon settlement.

BIS is an international organisation which fosters cooperation among central banks and other agencies in pursuit of monetary and financial stability. The Committee on Payments and Market Infrastructures (CPMI) uses three common structural approaches, or models, to categorise the links between delivery and payment in a securities settlement system.

China A Share and Shenzhen B share settlement follows BIS Model 2: a system that settle securities transfer instructions on a gross basis, with final transfer of securities from the seller to the buyer (delivery) occurring throughout the processing cycle, but settle funds transfer on a net basis, with final transfer of funds from the buyer to the seller (payment occurring a the end of the processing cycle).

Book-Entry: A and B shares are lodged with the CSDCC Shenzhen and are registered automatically in the name of the investor ID holder on settlement. Street name is not allowed while nominee registration is permitted for B shares. Depository records form the registration record. The registration process has no impact on the availability of the shares.

Physical: Not applicable.

CSDCC Shenzhen Branch.

Registration takes place automatically upon settlement.

Share holdings may be required to be disclosed by the beneficial owner, particularly when holdings reach or exceed prescribed disclosure limits. Investors must ensure that they comply in full by reporting such holdings to the appropriate organisations for this market, within the timeframe required. If you have any questions regarding this issue we encourage you to consult your legal counsel. 

Failure to comply with reporting requirements may lead to penalties and/or other sanctions.

A shareholder and its concerted party owning more than 5% of the total listed shares (e.g. A, B, H shares and convertible securities), of a company must submit a report within three working days to the CSRC, and the SSE, notify the listed company, and make a public announcement. During the reporting period, trading of that listed company’s equities is prohibited. Any subsequent increase or decrease of 5% must also be reported.

According to Article 47 of the Securities Law, where any director, supervisor and senior manager of a listed company or any shareholder who holds more than 5% of shares of a listed company, sells the stocks of the company as held within six months after purchase, or purchase any stock as sold within six months thereafter, the profits generated from the sale shall be incorporated into the profits of the relevant company.

If a director, supervisor, senior manager of a listed company or shareholder holds more than 5% of the shares of a listed company and violates the provisions of Article 47 of the Securities Law, they will be given a warning and be concurrently imposed a fine of RMB 30,000 to RMB 100,000, according to Article 195 of the securities law.

Furthermore, in the event of the following situations, (R)QFIIs, as the eligible convertible bonds investors, must file the report to CSRC and stock exchanges, inform the listed company, and make a public announcement within three working days:

• when an investor’s holding of convertible bonds (CB) reaches or exceeds 20% of the total CB issued by a listed company
• when an investor’s holding of CB reaches or exceeds 20% of the total CB issued by a listed company and the investor subsequently changes his holding by another 10% of the CB issued by the same listed company.

During the reporting period and within two days of reporting and making the public announcement, the investor cannot buy CB or stock of the listed company.

In addition, according to the Provisional Measures on Administration of Commercial Banks Shareholding (hereinafter referred to as “Provisional Measures”) promulgated on 5 January 2018, Notice on the Implementation of the Relevant Work Concerning the “Provisional Measures on Administration of Commercial Banks Shareholding” (CBRC [2018] No.48) and Notice on the Governing of Commercial Banks Shareholder Reporting (CBRC [2018] No.49) promulgated on 9 March 2018 by China Banking Regulatory Commission (CBRC), shareholders of commercial banks shall follow the notices to obtain approval from CBRC or report to CBRC according to the reporting requirements as stipulated therein. Key highlights are as below. Foreign investors shall consult their external legal advisors for the detailed requirements and relevant impact.

• The investor and its affiliates and concerted parties, individually or jointly, for the first time plan to hold or to increase shareholding to reach five per cent (or more) of the capital/issued shares of a commercial bank, shall obtain the pre-approval from CBRC or local branch of CBRC. In case where the five per cent (or more) shareholding is acquired through onshore/offshore securities market, the validity of the approval is six months. The detailed requirements and process of approval shall follow the relevant CBRC rules.

• The investor and its affiliates and concerted parties, individually or jointly, hold one per cent to five per cent of the capital/issued shares of a commercial bank, shall report to CBRC or local branch of CBRC within 10 working days of acquiring the shareholding. The detailed requirements and process of the report shall follow the relevant CBRC rules.

The shareholding held by the investor and its affiliate and concerted parties shall be aggregated when making calculation of shareholding percentage.

QFII/RQFII license holder who invested in list insurance company or securities company need complies with < Measures for the administration of equity rights of insurance companies > and < Measures for the administration of foreign-invested securities companies >.

On 26 May 2017, China Securities Regulatory Commission (“CSRC”) issued the revised rules (CSRC [2017] No.9) for controlling shareholders and shareholders holding shares of 5% or above (referred as “substantial shareholders” thereafter), listed companies’ directors, supervisors and senior executives, and other shareholders who are reducing the holdings of pre-IPO shares and non-public offering of a listed company on reducing holdings.

On 27 May 2017, Shanghai Stock Exchange and Shenzhen Stock Exchange also released relevant implementation details (collectively “Stock Exchange Implementation Details”).

Key highlights of CSRC [2017] No. 9 are as below:

1. When the holdings are reduced via block trading, both the transferor and transferee shall comply with the relevant Stock Exchange Implementation Details regarding quantity of holdings reduction, holding period, etc. According to the Stock Exchange Implementation Details, the shareholding reduction cannot exceed 2% of the total shares of the listed company within any consecutive 90 days, and the transferee cannot further transfer the shares within six months of acquiring the shares.
2. For shares purchased via non-public offering, the shareholders shall also comply with the relevant Stock Exchange Implementation Details on percentage restriction when the shareholders reduce the holdings via collective bidding system within 12 months after the end of the lock-up period. According to the Stock Exchange Implementation Details, the percentage of shareholding reduction cannot exceed 50% of the holdings that the shareholder purchased through the non-public offering.
3. If the shareholders are not a substantial shareholder but hold pre-IPO shares or non-public offering shares of a listed company, the total number of shares to be reduced by these shareholders through collective bidding system within 3 months should not exceed 1% of the total shares of the listed company.
4. Pre-event disclosure of shareholding reduction plan is now also applicable to directors, supervisors and senior executives of listed companies, in addition to substantial shareholders,. Furthermore, information disclosure requirement also covers during and after such shareholding reduction.
5. After the reduction via agreement transfer (with scenarios being clarified) from the substantial shareholder, the transferor and corresponding transferee shall also abide by the restrictions mentioned in above point 3 and 4 within the next 6 months of the share reduction.
6. For shareholding reduction by substantial shareholders, their holdings reduction should be aggregated with its concerted parties.

Shareholding reduction shall abide by Stock Exchange Implementation Details and abnormal trading behaviors and violations will be subject to restricted trading, investigation and penalty.

For B-share nominee accounts opened in Shenzhen, CSDCC requests a quarterly disclosure of end-beneficial information (name and holding) by the account holder via the local custodian. This disclosure is to facilitate any subsequent no change to beneficial ownership (NCBO) transfers.

A shares
There are no buy in or sell out related exchange rules for the A share market.

In the event that a custodian runs into an overdraft at its clearing reserve account with CSDCC on T+1, the CSDCC will impose overdraft interest equivalent to the inter-bank deposit rate, as well as penalty interest (0.1% per day) based on the amount of overdraft. Additionally, CSDCC will provisionally retain the securities held by the custodian, equal to 120% of the amount of the overdraft. If the custodian repays the overdraft and interest within two days, the CSDCC will return the provisionally retained securities. Otherwise, the CSDCC will dispose of the retained securities to cover the overdraft. If the proceeds from the disposal are not sufficient to cover the principal of the overdraft and the penalty interest, the difference will be claimed from the custodian.

B shares
Transactions not settled on T+3 must be settled by T+5, or a forced buy-in or sell-out will take place on T+6. 

Responsibility for ensuring settlement depends on the party at fault:

• for trades unconfirmed by custodian bank, the buying/selling broker is responsible for settlement.
• for trades confirmed by custodian bank, the custodian bank and underlying clients are responsible for settlement.

If a party is unable to fund a purchase, the CSDCC Shenzhen branch uses the guarantee fund to effect payment for settlement. The defaulting party using the guarantee fund incurs a handling fee of 0.5% of the amount of guarantee fund used per day. If the guarantee fund is not covered by T+5, the CSDCC enforces a sell out on T+6.

Short selling is prohibited in the market, if it occurs the CSDCC Shenzhen will freeze the cash amount of the transaction. The clearing participant must cover its short position by T+5. If there is a corporate event on the short sold shares and the short position is not covered on the record-date, the clearing participant has responsibility not only to buy back the insufficient shares, but also to buy back the bonus shares and rights derived from short sold shares on the next business day after the record date and pay the CSDCC Shenzhen the dividend and the dividend distribution commission on the third business day following the record date. The clearing participant should offset the short sales on or before T+5; otherwise the clearing company will make a forced buy-in on T+6. The CSDCC Shenzhen will impose fines of HKD1 per 1 short-sold share. For the short position not covered on the record date, a higher rate of fine will be applied.

QFIs are currently allowed to participate in securities lending and borrowing transactions and will further be allowed to participate in bond repo transactions, although these facilities are currently under development. Further, the arrangements for QFI participation in bond repurchase activities will become effective when these are launched on the stock exchanges.

The Settlement Guarantee fund is intended to ensure that participants meet their settlement obligation and liabilities.

The Settlement Risk Fund is intended to deal with systemic failure.

For A shares only

The Minimum Clearing Reserve Fund: RQFII/QFII are required by CSDCC equivalent to deposit 0.06% of the average daily inward remittance of all the R/QFIs for the previous month in the Shenzhen market. The calculation is based on the amount reported by the custodian, which must also comply with the amount approved by the State Administration of Foreign Exchange for deposit into the RMB account with the custodian bank

The People’s Bank of China (PBOC) promulgated the “Anti-money Laundering Law of the People's Republic of China” on October 31, 2006, which governs the supervisory management of anti-money laundering, financial institutions’ obligations on anti-money laundering activities, investigation of anti-money laundering activities, international cooperation on anti-money laundering, as well as the legal responsibilities.

The PBOC has further promulgated “Provisions on Anti-money Laundering through Financial Institutions” with effect from January 1, 2007, which governs the anti-money laundering activities by commercial banks, securities companies, fund management companies, futures brokerage companies, insurance companies, trust investment companies, financing companies, and other financial institutions. In the Provisions, it stipulates that PBOC shall be the administrative department for anti-money laundering of the State Council, which shall supervise and administer the anti-money laundering work of financial institutions under law. CBRC, CSRC and China Insurance Regulatory Commission (CIRC) shall, in light of their respective functions, exercise their duties of anti-money laundering supervision and administration.

In addition, PBOC promulgated “Administrative Measures for the Financial Institution Reporting of Large Amount Transactions and Suspicious Transactions”, taking effect on 1 March 2007. The Measures stipulated Financial Institutions' role and responsibility in reporting of large amount or suspicious transactions for anti-money laundering purpose. PBOC and its branches shall be responsible for monitoring of such reporting by financial institutions.

This is an FII market. Please contact your RBC Investor Services' representative before making portfolio investments.

A-share Market 
(R)QFII applicants must submit license applications and quota registration/application to both the CSRC and SAFE through the custodian. A securities investment license will be issued to those applicants whose applications have been approved. Applicants will register with/apply to SAFE through their custodians for basic/incremental investment quota / RMB and foreign exchange account opening. For foreign investors under RQFII scheme, each RQFII can appoint up to 3 local custodian banks. RQFIIs who use multiple local custodian banks shall appoint one of them as its Master Reporting Bank. For RQFIIs who use only one local custodian bank, that local custodian bank will become Master Reporting Bank by default. The Master Reporting Bank is responsible for the application and reporting with SAFE. Normally it will take CSRC and SAFE a certain while e.g. 3-4 months for CSRC to grant a license and 1-2 months for SAFE to register/permit quota, depending on the market situation.

Upon receipt of the approval from the CSRC and SAFE, the subcustodian will submit an account opening application to CSDCC Shenzhen Branch. The account-opening fee charged by CSDCC Shenzhen Branch is RMB 200. 

A QFII applicant should fall within the following criteria:

• The applicant should have sound financial and credit status, should meet the requirements set by the CSRC for asset size and other factors.
• Employees of the applicant should meet the requirements for professional qualifications set by its home country/region.
• The applicant should have a sound management structure and internal control system, should conduct business in accordance with the relevant regulations, and should not have received any substantial penalties by regulators in its home country/region during the three years prior to application.
• The applicant’s home country/region should have a sound legal and regulatory system, and its securities regulator should have signed a memorandum of understanding with the CSRC and should have maintained an efficient regulatory and cooperative relationship with the CSRC.
• Other criteria as stipulated by CSRC based on prudent regulatory principles.

Eligible QFIIs include fund management companies, securities firms, insurance companies, commercial banks, pension funds, charity endowment funds and other asset management institutions and must meet the following qualification criteria:

A RQFII applicant should fall within the following criteria:

Qualified financial institutions registered and having its principal place of business in Australia, Canada, Chile, France, Germany, Hong Kong, Hungary, Ireland, Japan, Korea, Luxembourg, Malaysia, Netherlands, Qatar, Singapore, Switzerland, Thailand, UAE, UK and USA with asset management license issued by the competent local securities regulator.

B-share Market
A foreign institutional investor must obtain a unique investor code from the CSDCC Shenzhen Branch before investing in the Shenzhen stock market. The CSDCC Shenzhen Branch requires foreign investors to provide identifying documentation for obtaining the investor code prior to entering the market. Additionally, a local subcustodian opening accounts on behalf of a foreign investor must show documentation that it has received a mandate to open an account from an authorised individual within the institution seeking access to the market. 

Each investor code holder can only have one local custodian bank.

The code, which identifies the name, address, country of domicile, and tax identification number (or equivalent reference number from the country of domicile) of the beneficial owner, can be secured through one of the CSDCC Shenzhen Branch’s clearing participants, normally the custodian. An institutional investor must supply the unique investor code and name to the broker whenever placing securities transaction orders. CSDCC Shenzhen Branch charges an account-opening fee of HKD 580 for institutional investors and HKD 120 for individual investors.

Foreign investment is permitted in the B share market. 

Foreign institutional investors who have been granted (R)QFII status, are able to invest in the A share and Exchange Bond market.

Foreign Ownership Limits
Each individual foreign investor through (R)QFII(s) cannot hold more than 10% of the total shares of any listed company. All foreign investors on an aggregate basis through (R)QFIIs cannot hold more than 30% of the total shares of any listed company

On January 9, 2016, SSE and SZSE issued the implementation notice for substantial shareholders, directors, supervisors and senior executives of listed companies on reducing holdings. The total number of shares to be reduced by the substantial shareholder through collective bidding system for a rolling 3 months’ period should not exceed 1% of the total shares of the listed company starting from January 9, 2016.

If the aggregated shareholding of a listed company held by all the foreign investors reaches or exceeds 26%, Shanghai Stock Exchange (SHSE)/Shenzhen Stock Exchange (SZSE) will publish the aggregated shareholding information of the listed company by all foreign investors on its official website.

By close of a trading day, if the shareholding of a single foreign investor via QFII/RQFII to a single listed company exceeds the stipulated proportion (i.e. 10%), the QFII/RQFII will be required to sell the exceeding portion within 5 trading days and disclose the information accordingly.

By close of a trading day, if the shareholding of all foreign investors to a single listed company exceeds the stipulated proportion (i.e. 30%), SHSE/SZSE will release “force selling” notification to the appointed securities brokers and custodians of the QFII/RQFIIs based on the “Last Buy First Sell” principle. The QFII/RQFIIs should sell the exceeding portion within 5 trading days.

QFIIs/RQFIIs may invest in the following financial instruments: (1) Shares, bonds and warrants listed or transferred on the stock exchange; (2) Fixed income products traded in the inter­bank bond market (“CIBM”); (3) Securities investment funds; (4) Index future; (5) FX derivatives (for hedging purpose); (6) Chinese Depository Receipt; (7) Other financial instruments as approved by CSRC

In addition, QFII/RQFII can participate in the subscription for additional share issues, rights issues, IPO of shares and IPO of convertible bonds.

Further, in CIBM upon registration, currently QFIIs/RQFIIs can invest in cash bonds, such as government bonds, PBOC bills, financial bonds, commercial paper, mid­term notes, etc., interbank deposits, and participate in bond IPO.

SAFE has decided to abolish the investment quota limitation on qualified foreign investors. Once the quota limitation is removed, QFIIs and RQFIIs will no longer need to apply or file for the investment quota at SAFE. SAFE will also will remove the geographic limitation for RQFII scheme.

A share
There are two types of repatriation: principal repatriation and profit repatriation. 

For QFII:
For Open-ended China Fund/Publicly Raised Open-ended Fund:

• No lock-up period applied.
• Daily remittance or repatriation for net amount of subscription and redemption
• For profit repatriation (not related to subscription or redemption): supporting documents are required

For Non Open-ended China Fund/Publicly Raised Open-ended Fund:

• No lock-up period applied
• No restriction in remittance or repatriation frequency (SAFE verbal guidance)
• For principal repatriation: not required to file with SAFE
• For profit repatriation: supporting documents are required

For both Open-ended Fund and Non Open-ended Fund:

SAFE may reduce or even revoke QFII’s investment quota depending on the relevant circumstance where QFII fails to effectively utilize the investment quota within 1 year upon obtaining the investment quota.

For RQFII:
For both Open-ended Fund and Non Open-ended Fund::

• No lock-up period applied
• For Open ended funds, RQFII may, in accordance the net amount of subscription and redemption, inject or repatriate the funds on daily basis via its Custodian. 
• For RQFIIs who need to repatriate realized cumulative profit, its Custodian shall process the repatriation based on RQFIIs’ written application or instruction, together with the audit report on investment profits issued by Certified Public Accountant(s) in the PRC and tax clearance or tax filing (if any) etc.

SAFE may reduce or even revoke RQFII’s investment quota depending on the relevant circumstance where RQFII fails to effectively utilize the investment quota within 1 year upon obtaining the investment quota.

QFII Principal Repatriation
The QFII is required to provide the following documents/information to the custodian for repatriation of principal for both Open-ended Fund and Non Open-ended Fund:

• Repatriation instruction from Global Custodian

Note: After the FX and repatriation, SAFE Shanghai may request QFII to prepare some filing documents to indicate the details of the FX and repatriation transaction.  Further, QFII may be requested to attend an on-site meeting with SAFE Shanghai for their recent and future repatriation plan if needed.

QFII Profit Repatriation
Except for Open-ended China Fund, for other QFII who need to repatriate realized profits, the QFII is required to submit the following documents to custodian in addition to those described above under Principal Repatriation.

• Special audit report issued by a local CPA firm appointed by QFII on investment earnings
• Tax Payment Filing Form (Please consult with your tax advisor regard the Tax Filling Form)

RQFII Principal Repatriation 
For Non Open-ended Fund and Open-ended fund, the custodian requires a repatriation instruction from the Global Custodian.

RQFII Profit Repatriation

Except for Open-ended China Fund, for other RQFII who need to repatriate realized profits, the RQFII is required to submit the following documents to custodian:

• Special audit report issued by a local CPA firm appointed by QFII on investment earnings
• Tax Payment Filing Form (Please consult with your tax advisor regard the Tax Filling Form)
• Repatriation instruction from Global Custodian

B share
Income or sales proceeds on B shares is paid in USD and can be repatriated freely.

For QFIIs, FX conversion is only allowed for capital injection and repatriation. QFIIs may inject capital within the quota previously registered/granted by SAFE. No lock-up period.

CSRC regulations require QFII’s PRC custodian to execute foreign exchange on behalf of its QFIIs. Offshore FX trades are not permitted. QFIIs may, according to the investment plan etc. and within 30 working days prior to their actual investment, notify the PRC custodian to convert the foreign currency needed for the investment into RMB and transfer to its RMB accounts. 

Currency
Most of QFIIs’ FX transactions are denominated in USD.

Capital Repatriation
QFII may repatriate the relevant principal and profits via its Custodian. For Open ended funds, QFII may, in accordance the net amount of subscription and redemption, inject or repatriate the funds on daily basis via its Custodian.  For QFIIs who need to repatriate realized cumulative profit, its Custodian shall process the repatriation based on QFIIs’ written application or instruction, together with the audit report on investment profits issued by Certified Public Accountant(s) in the PRC and tax clearance or tax filing (if any) etc. For QFIIs’ liquidation (including product liquidation), the Custodian shall process the repatriation and the account closure based on QFIIs’ written application or instruction, together with the audit report on investment profits issued by Certified Public Accountants in the PRC and tax clearance or tax filing certificate etc. 

On June 12, 2018, the SAFE officially released the 2018 version of Provisions on the Foreign Exchange Administration of Domestic Securities Investment by Qualified Foreign Institutional Investors effective from June 12, 2018:

1. A basic quota will be granted according to the below benchmarks:

a. For QFII or its group company's asset (or assets under management) being mostly outside of mainland China: USD100 million plus 0.2 per cent of the average asset size in the past three years minus approved RQFII quota (USD equivalent).
b. For qualified investors or its group company's asset (or assets under management) being mostly within mainland China: equivalent to RMB 5 billion plus 80 per cent of asset size in the past one year minus the approved RQFII quota (USD equivalent).
c. Not exceeding USD 5 billion (including offshore sovereign entities, central banks and monetary authorities).
d. Not less than USD 20 million.

2. QFIIs would automatically obtain a basic quota up to a certain percentage of their asset sizes or sizes of asset under management through filing with SAFE. Official approval from SAFE is only required for incremental quota exceeding the basic quota.

3. Further ease the inward and outward fund remittance. There is no longer an injection period requirement for QFII fund injection, and QFII open-ended funds are allowed to remit/repatriate on a daily basis. Lock-up period and 20% monthly repatriation limitation is removed.

4. QFII is allowed to engage in onshore FX derivatives trading with custodian or financial institutions that are eligible to offer FX derivatives products for the purpose of hedging FX risk arising from the onshore securities investment. QFII shall follow “trading on actual needs” principle when engage in onshore FX derivatives trading. The positions of FX derivatives held by QFII shall not exceed their onshore asset value (excluding cash) as of the previous month end. QFII shall adjust the FX derivatives positions on monthly basis, within 5 working days of each month to ensure compliance with the “trading on actual needs” principle.

5. Quota transfer or selling is not allowed without SAFE’s approval.

Further, on June 12, 2018, the PBOC and SAFE officially released the 2018 version of Circular of the People’s Bank of China and State Administration of Foreign Exchange on Relevant Issues Concerning Investment in Domestic Securities by Renminbi Qualified Foreign Institutional Investors effective from June 12, 2018:

1. A basic quota will be granted according to the below benchmarks:
2. For RQFII or its group company's asset (or assets under management) being mostly outside of mainland China: Equivalent to USD100 million plus 0.2% of the average asset size in the past three years minus approved QFII quota (RMB equivalent);
3. For RQFII or its group company's asset (or assets under management) being mostly within mainland China: RMB5 billion plus 80% of asset size in the past one year minus approved QFII quota (RMB equivalent).

Above exchange rates shall refer to the conversion rate table of various currencies against USD published by SAFE in the previous month of the day when RQFIIs submit Basic Quota filing.

2. RQFII would automatically obtain a Basic Quota up to a certain percentage of their asset sizes or sizes of asset under management through filing with SAFE. Official approval from SAFE is only required for incremental quota exceeding the Basic Quota.
3. SAFE adopts a balance management regime for Investment Quota granted to RQFIIs, including both Open-ended fund and other assets or products.
4. Further ease the inward and outward fund remittance for other assets or products, on top of open-ended funds. Lock-up period is removed.
5. RQFII is allowed to engage in onshore FX derivatives trading with custodian or financial institutions that are eligible to offer FX derivatives products for the purpose of hedging FX risk arising from onshore securities investment. RQFII shall follow “trading on actual needs” principle when engage in onshore FX derivatives. The positions of FX derivatives held by RQFII shall not exceed its onshore asset value (excluding cash) as of the previous month end. RQFII shall adjust the FX derivatives positions on monthly basis, within 5 working days of each month to ensure compliance with the “trading on actual needs” principle.
6. Quota transfer or selling is not allowed without SAFE’s approval.

For B share investors in Shenzhen, sales proceeds and income in HKD can be freely repatriated.

For A share, overdrafts in (R)QFII’s RMB account are prohibited.

For B share, based on the current rules and regulations, all Chinese banks are not allowed to provide credit facilities for securities trading or settlement.

In general, the listing company pays the dividend once or twice a year, mostly between April and October. The payment day is the day after the record date. Dividend and other income from B shares are paid in HKD and may be repatriated upon receipt.

B share market
Entitlements are calculated based on the registered holdings as of record date, which is two business days after ex-date. Dividend payments are declared in RMB, but are paid in HKD. The exchange rate to convert RMB into HKD is determined during the shareholder’s meeting. If not specified during the shareholder’s meeting, the exchange rate is typically set as the rate announced by the People’s Bank of China (PBOC) on the first business day after the shareholder’s meeting.

Payment date falls one day after record date in Shenzhen. The company delivers the funds to the central depository’s clearing bank on payment date, who in turn pays the dividend proceeds to the clearing participant’s HKD account (in Hong Kong).

A share market
Dividends are paid in RMB by the CSDCC Shanghai and Shenzhen branches on behalf of the companies. Entitlement is based on the announced record date. Custodian banks reconcile the entitlements against the confirmation from the CSDCC. Payment date is usually one working day after record date. 

The listed company as paying agent is responsible to withhold and pay the tax to the paying agent’s domiciled tax bureau for RQFII investors. 10% withholding tax will be collected from cash dividend and net amount will be credited to the investor's cash account on payment date. The bonus shares from profit are also subject to 10% withholding tax. In local market, both the tax for cash dividend and bonus issue from profit are debited from the cash dividend amount.

A share:
Semi-annual or annual. Declared and paid in RMB.

B share:
Semi-annual or annual. Declared in RMB and paid in HKD.

A share: annual or semi-annual bond coupon interest and quarterly cash deposit interest.

B share: not applicable.

Currently, only approved RQFIIs are allowed to invest in exchange-listed fixed income instruments (e.g. treasury bonds, local government bonds, corporate bonds, enterprise bonds, detachable bonds and convertible bonds) in the “A” share market.

All Treasury bond interest payment information is announced by the stock exchange via the local newspapers. Entitlement is based on the settled positions as of record date. Local custodians reconcile the entitlements against the confirmation from the CSDCC. At the end of record day, local custodians receive payment confirmation file from the CSDCC. Interest proceeds are usually credited to the RQFII’s cash account on payment date, which is normally one working day after record date.

As per SAT's circular issued in January 2009, the bond issuer as the paying agent is responsible to withhold and pay the tax to the paying agent’s domiciled tax bureau for RQFII investors. 10% withholding tax will be collected from coupon interest and net amount will be credited to the investor’s cash account on payment date. 

Not applicable

A share market:

• Record date: Entitlements are based on settled position on record date. Entitlement list is prepared by the CSDCC Shenzhen. The record date is the last trading day.
• Ex-date: Ex-date is one working day after record date. For purchases, stock traded before ex-date is entitled to new shares/dividend, while trades executed on or after ex-date will not have the entitlement.
• Payment date: The payment date of bonus issue is two working days after record date for bonus issue, while one working day after recordthere is no regular/fixed period between record date and payment date for cash dividends, and the payment date for cash dividend is announced by the company separately.

B share market:

• Record date: Entitlements are based on settled position on record date. Entitlement list is prepared by the CSDCC Shenzhen. The record date is two working days after the ex-date.
• Ex-date: for purchases, stock purchased before ex-date is entitled to the dividend while trades purchased on or after ex-dates will not have the entitlement.
• Payment date: The payment date of bonus issue is two working days after record date, while there is no regular/fixed period between record date and payment date for cash dividends, and the payment date for cash dividend is announced by the company separately

Dividends and other income are paid/distributed to investors by the CSDCC Shenzhen by way of HKD, according to the list of shareholders maintained by the CSDCC Shenzhen. Upon receipt of the entitlement, the custodian reconciles the payment against the investor’s entitlement recorded in its system and credits the investor’s account.

A share market:
Entitlements are determined by a client's settled positions of record date. For purchases, stocks traded before ex-date are entitled to the dividend. But trades executed on or after ex-dates will not have the entitlement. Market claims only apply when error trades occur. In that case, custodian will arrange to claim the non-received income or corporate action entitlement from brokers based on the error trade handling agreement signed by RQFII, broker and custodian, and upon receipt of instructions from clients where necessary. Once the claimed income is received, custodian will immediately deposit and credit the securities and funds into the client's account under advice to the client.

B share market:
Entitlements are determined by a client's settled positions of record date. For purchases, stocks traded before ex-date are entitled to the dividend. But trades executed on or after ex-dates will not have the entitlement. For a sale trade executed before ex-date, it will have no entitlement even if it fails to be settled before record date. Claims may have to be made if a settlement is delayed but the entitlement will be attached.

The custodian will arrange to claim non-received income or corporate entitlement from counterparts upon pending or failed trades being settled. However, for delay settled no change in beneficiary owner off-market trades, custodian will claim the non-received income and entitlements upon receipt of advice from clients. Once the claimed income is received, custodian will immediately deposit and credit the securities and funds into the client's account under advice to the client.

Foreign investors are entitled to exercise voting rights on Series A and B shares.

Share blocking is not applicable in China's securities market.

Disclosure of shareholder information is limited and is only announced through the appointed newspapers - theShanghai Securities News, Securities Time and China Securities Journal - in Chinese. Annual general meetings (AGMs) are announced 20 days in advance. Extraordinary general meetings are generally announced 15 days in advance.

Announced through the official appointed newspapers - the Shanghai Securities News, Securities Times and China Securities Journal.

Provided on request, subject to availability

Required

Shareholders of "A" and "B" shares have equal rights. Individual shareholders and custodians can consolidate share positions and vote by proxy.

A share/B share
In accordance with the new Corporate Income Tax Law and its Detail Implementation Rules (jointly “CIT Law”), non-resident corporate without PE in China shall pay 10% CIT on income sourced from China. Therefore (R)QFIIs without PE in China are subject to 10% CIT on dividend (including cash dividends and stock dividends distributed from profit) derived from China. 

According to the announcement released by Ministry of Finance (MOF) and SAT on 16 November 2012, differentiated dividend tax rate on individual investors will be effective from 1 January 2013.

Dividend tax on stocks purchased by individual investors via public offering and the secondary market will be applied with a standard tax rate of 20% and the taxable amount will be subject to how long the investors hold their shares:

• For individual investors who hold the stock for more than one year, the taxable amount will be 25% of the dividend amount.
• For individual investors who hold the stock for more than one month to one year, the taxable amount will be 50% of the dividend amount.
• For individual investors who hold the stock for less than one month (inclusive), the taxable amount will be 100% of the dividend amount.

On 7 September 2015, the MOF, SAT and CSRC issued a further notice on differentiated individual income tax on stock dividend, stating that individual investors that hold stocks for more than 1 year will be temporarily exempted from personal income tax on stock dividends. Others tiers are unchanged.

For those foreign individuals who invest in A-share market to trade specified stocks through Shanghai-Hong Kong or Shenzhen-Hong Kong stock connect. Dividends received by Hong Kong investors, before Hong Kong Securities Clearing Company Limited is able to provide details on identities and shareholding periods of investors for CSDCC, are not subject to the differentiation tax policies based on the shareholding period for the time being, but shall be subject to the income tax at a tax rate of 10% to be withheld by listed companies,

Note: For professional tax advice, please always seek from client’s local tax consultant.

A share
In accordance with the CIT Law, RQFIIs shall pay 10% withholding tax on interest (including deposit interests and coupon interests). The deposit interests for RQFIIs include the credit interests they earned on the RMB accounts and FCY accounts maintained with the local custodian, as well as the credit interests they earned from the clearing reserve fund and warrant collateral fund (if applicable) placed with the CSDCC. 

B share
N/A. There is no credit interest paid to securities related cash accounts in China B-share market as they are current account. Coupon interest is not applicable to B-share investors, since fixed income instruments are not available in B share market.

A shares
On 14 November 2014, the Ministry of Finance (MOF), State Administration of Taxation (SAT) and China Securities Regulatory Commission (CSRC) jointly issued a notice regarding the tax treatment on capital gains for QFII and RQFII. It was advised that QFII and RQFII will be temporarily exempted from corporate income tax for the capital gains derived from transferring stocks and other equity investments in Mainland China effective from 17 November 2014, and the capital gains derived before 17 November 2014 shall pay corporate income tax.

For details of the Double Taxation Treaties (DTT) of each country, please refer to the following website:

https://www.chinatax.gov.cn/eng/home.html

0.05% of gross consideration is payable by the seller only for A shares and B shares. Funds, warrants and bonds are exempted from stamp duty.

The State Council extended exemption of corporate income tax and value-added tax on bond interest gains arising from investment in the China bond market for overseas institutional investors.The original tax exemption period is from 7 November 2018 to 6 November 2021. The exemption policy extended till 31 December 2025 which is the end of the 14th Five-Year Plan period (2021-2025) of China.

China - Shenzhen Holiday Calendar

• China Securities Depository and Clearing Corporation Ltd (CSDCC) chinaclear.cn 
• China Securities Regulatory Commission (CSRC) csrc.gov.cn
• Shenzhen Stock Exchange (SZSE) szse.cn
• The People's Bank of China (PBOC) pbc.gov.cn
• The State Administration of Foreign Exchange (SAFE) www.safe.gov.cn
• The China Banking and Insurance Regulatory Commission (CBIRC) cbrc.gov.cn