The rule, designed by the State Administration of Foreign Exchange (SAFE), came out two days before the formal launch of the experimental scheme that will open up the domestic A-share and bond markets to foreign institutional investors, according to Friday's China Daily.

It clarified foreign-exchange management systems for the accounts and quotas used for QFII investment, as well as remittance of capital, liabilities of the custodians and the supervisory role of the government. The regulation is a supplement to a circular issued three weeks ago that gave the go-ahead to the QFII program and set up the initial framework.

Under the new rule, each qualified foreign investor can only open one special Renminbi account to facilitate securities trading in China. The investor can apply for an investment quota that equals something between 50 million US dollars and 800 million US dollars.

The QFII program is a transitional mode in the opening-up of the securities market before the Renminbi becomes freely convertible in China.

Risk control is crucial to the program, so the Chinese government has to work out a detailed scheme to avoid the inflow of international hot money that would hurt the financial soundness of the country, a SAFE spokesperson said.

(Xinhua News Agency November 29, 2002)