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.

Indeed, CSRC hasn't even done the necessary preparatory work. While the bank regulator announced a set of detailed rules within two months of the programme's introduction, the stock market regulator has said nothing so far. The brokerage and asset management industry has no idea what the requirements of a QDII service provider will be or what kind of products they will be allowed to market.

Why the big difference? The official explanation is that the stock market carries more risks and is more volatile than the bond market. So it's best to start with fixed-income securities.

This explanation is fine as far as it goes. But it doesn't excuse the lack of progress in creating the regulatory framework for stock-related QDII investments. The Chinese saying 'the ass rules the mind' perhaps sheds more light.

CBRC's performance is judged by the health of banks it regulates. The QDII business brings in non-interest income that every bank desperately wants to expand, so the regulator's supportive attitude for the scheme is understandable. Overseas bond investments also pose less competition to the domestic market, which remains in its infancy compared with the now-thriving Shanghai and Shenzhen stock markets.

Moreover, the mainland bond market is a game for institutional players who are presumed to be more sophisticated and, thus, better able to take care of themselves than the retail investors who dominate share trading.

The story is very different at the CSRC. Yes, the QDII business will bring brokers and fund managers fee income. But the commission is more concerned about the ups and downs of the A-share index than brokers' bottom lines. The QDII scheme is seen as a threat to the local stock markets by diverting money away from them.

CSRC chairman Shang Fulin, who stunned international regulators when he met with brokers during the 2003 market downturn to seek their advice on how to revive the stock market, is a known opponent of the QDII scheme. His higher-ups will have to overrule him, an act they are unlikely to do until the pressure of the mounting foreign exchange reserves becomes too great.

Meanwhile, the CSRC's resistance is likely to be stiffened by the two-week slide in the benchmark Shanghai A-share index.