Watchdogs' worries will keep QDII cash from us for some time

FACED WITH BALLOONING foreign exchange reserves and pressure to revalue the yuan, China has increased the amount of money domestic institutions can invest overseas by more than 70 per cent in less than a month.

The news has fuelled hopes among some investors that the Hong Kong stock market will soon be awash in mainland cash.

They are likely to be disappointed.

To understand why, consider the regulatory framework of the qualified domestic institutional investor (QDII) programme which governs just how that money can be spent.

Under the scheme, the State Administration of Foreign Exchange sets overall quotas, but the amount each institution can invest comes under the supervision of three different regulators. Banks go to the China Banking Regulatory Commission (CBRC); brokers and fund managers are beholden to the China Securities Regulatory Commission (CSRC), and insurers need approval from the China Insurance Regulatory Commission (CIRC).

In the three months since the QDII programme took effect, only the CBRC has handed out licences. The US$8.3 billion quota is shared by six banks whose overseas investment portfolio is limited to fixed income products.

The CSRC has thus far issued no licences, though seven asset management companies have already applied for them. That failure to act is especially striking since under a parallel system - the qualified foreign institutional investor (QFII) programme - some US$7.25 billion in foreign money has poured into China, mostly for share purchases.