CHINA Law and Practice Contributed by: Alan Du and Yiwei Shi, King & Wood Mallesons
• for money market funds, all assets must be invested in money market instruments; and • for funds of funds, 80% or more of the assets must be invested in other funds. In addition, public funds are subject to certain restrictions with respect to the proportion of the investment. For example, for each public fund, the value of securities of a single company held by the fund must not exceed 10% of the fund’s net asset value. 3.3.2 Requirements for Non-Local Service Providers Generally, only local service providers are allowed to provide services in China to public funds. For non-local service providers providing servic - es outside China to Chinese public funds/fund managers, under Shanghai-Hong Kong Stock Connect (a cross-boundary investment scheme that connects the Shanghai Stock Exchange and the Hong Kong Stock Exchange), Chinese fund managers are permitted to engage Hong Kong entities to provide investment advisory services such as issuance of a research report on south - bound trading (ie, domestic investors in China investing in securities listed in Hong Kong). A Hong Kong entity providing investment advisory services must comply with the relevant provi - sions under PRC law and Hong Kong law. In general, the Hong Kong service provider must have obtained the licence on providing invest - ment advice from the Hong Kong regulatory authority, the Securities and Futures Commis - sion (SFC). Where a Chinese public fund man - ager is provided with such services, it must file documents – including the service agreement, an undertaking letter issued by the Hong Kong
service provider and relevant certificates – with the CSRC. Except for the above, the law is silent regarding the registration requirements for other non-local service providers. Considering a Chinese public fund is unlikely to have an offshore account or other offshore operations, etc, it seems unlikely that a Chinese fund would engage a non-local custodian or administrator. 3.3.3 Local Regulatory Requirements for Non- Local Managers As mentioned in 3.1.2 Common Process for Set- ting Up Investment Funds , only fund manage - ment companies and asset management insti - tutions that have been approved by the CSRC are permitted to manage public funds in China. For non-local managers’ marketing activities in China for their offshore funds, according to the Interim Provisions on the Administration of Recognised Hong Kong Funds (the “Hong Kong Funds Provisions”), Hong Kong public funds – including unit trusts, mutual funds and other collective investment schemes – may be mar - keted to the general public in China after regis - tration with the CSRC. The registration is subject to strict conditions regarding the fund and the fund manager. For example, the Hong Kong fund must be established and operated in compliance with Hong Kong law, and must be approved to have a public offering and be regulated by the SFC. Also, the Hong Kong fund manager must be registered in Hong Kong and licensed to con - duct asset management. In addition, a prospective Hong Kong fund man - ager must engage a Chinese public fund man - ager or a custodian approved by the CSRC as its local representative.
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