Mini-QFII shelved amid worries over hot money

PUBLISHED : Tuesday, 23 November, 2010, 12:00am
UPDATED : Tuesday, 23 November, 2010, 12:00am

In yet another example of how Beijing's policymaking plans may not always be relied on, mainland and Hong Kong investors now fear the much-heralded 'mini-QFII' scheme could turn out to be no more than an empty promise.

The mini-QFII (qualified foreign institutional investor) scheme - under which Hong Kong units of mainland fund houses and brokerages were to be allowed to issue yuan-denominated A-share investment funds - has now been put on hold by Beijing as financial authorities try to curb capital inflows, Singtao Daily reported yesterday.

If the reported freeze has been ordered and remains in place, it would represent another U-turn by mainland regulators in policymaking since senior officials said in June that the programme would live up to expectations as Beijing was adamant in its desire to create more investment channels for offshore yuan.

The China Securities Regulatory Commission would not comment on the report yesterday. However, an official said long delays in granting a first approval to applicants for the programme should be expected.

'It is understandable that the scheme will be delayed because money inflow has become a thorny problem on the mainland market now,' said Chen Jiwu, president of Shanghai Vstone Capital.

The market expected the mini-QFII scheme to be launched by the end of the year as Beijing took a bold step towards internationalising the yuan. CSRC vice-chairman Yao Gang and Li Chao, deputy chief of the State Administration of Foreign Exchange, told a forum in June that the preparatory work on mini-QFIIs was advanced.

Several mainland fund companies and brokerages including Haitong Securities confirmed earlier that they had applied to the authorities to launch yuan funds and the first batch of mini-QFIIs would be launched within this year. A quota of about 20 billion yuan (HK$23.32 billion) worth of products was expected to be granted to the first batch of mini-QFII funds under a pilot scheme, said people with knowledge of the issue.

However, rampant hot money inflows and rising inflation must have deterred the authorities from issuing the first licences to the applicants, analysts said.

'The launch of a mini-QFII would add to the pressure on the central government as it strives to curb money inflows,' said Chen Xumin, a deputy director at Nanchong Commercial Bank. 'It will be reasonable for them to shelve the plan.'

Beijing has been notorious for its capricious policymaking in the finance sector.

In 2007, the SAFE announced it would launch a so-called 'through-train' programme under which mainland residents would be allowed to invest directly in Hong Kong-listed stocks. It was never implemented; regulators worried about capital outflows and a boom-to-bust cycle on the A-share market.