As mentioned above, there are a number of areas which foreign institutions are finding restrictive. They include the following:

• Bank account: upon the approval of the State Administration of Foreign Exchange ("SAFE"), each qualified QFII can only open one special RMB account with the custodian and open one special RMB account with the China Securities Depository and Clearing Company ("CSDCC") (中国证券登记结算有限责任公司) through the custodian to facilitate securities trading in China. However, under existing regulations, QFIIs are not permitted to open sub-accounts with the CSDCC. Sub-accounts are crucial to protect the interests of smaller investors which are clients of QFIIs.
• Investment quota: QFII can apply for an investment quota that equals something between US$50 million and US$800 million, which is high comparing with those of other locations; e.g. investment limits between US$5 million to US$50 million in Taiwan.
• Principal injection and repatriation: QFII is required to remit its principals within 3 months after obtaining the certificate from CSRC. The lock-up of such principals are 3 years and 1 year for QFIIs that are closed-end Chinese fund management companies and other QFIIs respectively. After the lock-up, QFII can apply with the SAFE to repatriate its principals by stages and by batches, no more than 20% of total principals for one single stage, and at least 1 month and 3 months interval between two stages for closed-end Chinese fund management company and for other QFIIs respectively.
• Share-holding percentage: each QFII should not hold more than 10% of one single listed company's total outstanding shares. QFIIs together should not hold in total more than 20% of one single listed company's total outstanding shares. Also, QFII's domestic investment activities should comply with the requirements as set out in the Guidance for Foreign Investment in Various Industries.
• Lack of index guidance: as A-shares have been off-limits to foreign investors in the past, A-shares have been excluded from major international indices, such as those compiled by FTSE and MSCI. In this regard, foreign fund managers have cited the inability to use FTSE or MSCI indices to benchmark performances of their A share investments as one obstacle to invest large amounts of funds into the scheme in the near term.

Double Taxation Treaty ("DTT") Provisions that may apply to a QFII

As of 31 December, 2002, China has signed 81 tax treaties and 1 tax arrangement with countries/localities around the world. As QFII is a foreign institution, DTT provisions between China and the country/locality where the QFII is tax resident should be relevant.