萬國法律事務所

On September 27th, the Financial Supervisory Commission (hereinafter the FSC) has announced that it will cancel the 30 per cent Investment Limit on Chinese Securities imposed on Mutual Funds based in Taiwan (hereinafter Domestic Mutual Funds). Domestic Mutual Funds will be allowed to invest over 30 per cent of its total asset on Chinese Securities.

According to the current regulations in force, Domestic Mutual Funds may not invest in Chinese Securities for over 30% of its total asset, which forces Domestic Mutual Funds to invest mainly in Hong Kong Securities. Also, current regulations dictate that for a Mutual Fund to bear a name indicating a focus on certain regional market (for example, “India Mutual Funds”), it must invest over 60% of its total asset in the specified market. Therefore, Domestic Mutual Funds may not bear any name specifying that it focuses its investment in the “China Market”. These all form limitations for Domestic Mutual Funds, both in terms of its investment elasticity and the effectiveness of promoting and selling its stocks.

The removal of this limit will provide Domestic Mutual Funds with more elasticity in the management of their investments. Domestic Mutual Funds may also seek to qualify itself as a China-oriented Mutual Fund, which may help attract investors interested in the Chinese Securities Market, providing them with an indirect means to invest in China A Share stocks.

However, it must be noted that this does not mean Domestic Mutual Funds may now invest in Chinese Securities without any limit, as regulations laid down by Chinese officials must still be complied with. Chinese regulations require that any foreign financial business enterprise seeking to invest in Chinese Securities must first apply for becoming a Qualified Foreign Institutional Investor (QFII), and declare the maximum amount it seeks to invest. At this moment, there are 6 domestic enterprises that have attained QFII status with an approved maximum investment amount of 17.1 billion NTD in total. With this new policy, enterprises with QFII status may exploit this new opportunity in the near future.