China's foreign exchange authority has granted overseas investment quotas
totaling US$4.8 billion to three qualified domestic institutional investors
(QDII).
According to the announcement from the State Administration of Foreign
Exchange (SAFE), the Bank of China, the Industrial and Commercial Bank of China
and the mainland subsidiary of the Bank of East Asia have been approved to buy
foreign exchange worth 4.8 billion dollars on behalf of their clients for
overseas investment.
The QDII scheme allows mainland institutions and residents to entrust
mainland commercial banks to invest a certain amount of money in financial
products overseas, and allowing insurance institutions to invest part of their
assets in overseas fixed-income products and money-market products.
This is the first time for Chinese commercial banks to get such investment
quotas in history, the Xinhua-run Shanghai Securities Journal reported.
After receiving the quota, the three banks will then raise Renminbi fund from
domestic individuals and institutions and change them into foreign currency for
overseas investment.
The Bank of China, the Industrial and Commercial Bank of China and the
mainland subsidiary of the Bank of East Asia received investment quotas of
US$2.5 billion, US$2 billion and US$300 million respectively from the State
Administration of Foreign Exchange.
The China Construction Bank, the Bank of Communications and the Hongkong
& Shanghai Banking Corp. have also submitted their QDII quota applications,
and the SAFE is examining their applications.
The China Banking Regulatory Commission has approved six banks including the
Industrial and Commercial Bank of China, the Bank of China, the China
Construction Bank, the Bank of Communications as well as the mainland subsidiary
of the Bank of East Asia and the Hongkong & Shanghai Banking Corp., to start
overseas investment on behalf of their domestic clients.
These banks have a great demand for such quotas, showing the QDII service
will have a broad market in the future, the SAFE said.
Due to expectation on further Renminbi appreciation, huge amounts of foreign
exchange rushed into China in recent years, pressuring Renminbi to go even
higher.
The QDII policy will help domestic fund to go out and alleviate the pressure,
according to the newspaper.
Besides QDII, the Chinese government launched the QFII (qualified foreign
institutional investor) pilot program in 2003, allowing foreign institutional
investors such as UBS, Deutsche Bank and Citigroup Global Markets Limited to
engage in the securities business on the Chinese mainland.
To date, 42 foreign investment institutions have been approved as QFIIs and
the SAFE has awarded investment quotas totaling US$7.145 billion to QFIIs.
The newspaper expected the QDII quota to exceed that of QFII and reach 10
billion dollars after the other three banks' applications are
approved.
