QDII3 to benefit Hong Kong, say bankers

Advisers call for HK$100 billion Qianhai scheme but Beijing approval is expected to take a while

PUBLISHED : Monday, 02 December, 2013, 9:48am
UPDATED : Tuesday, 03 December, 2013, 4:13am

Bankers and brokers believe a HK$100 billion investment scheme, dubbed QDII3, in the Qianhai economic zone in Shenzhen would benefit Hong Kong's standing as an offshore yuan centre in the face of overseas challengers but say it could take a long time for Beijing to approve it.

The scheme was proposed by a Hong Kong government advisory panel last week.

The Financial Services Development Council, tasked with drawing up proposals to boost Hong Kong's financial market, released its first batch of proposals last week.

Under the proposed third qualified domestic institutional investor scheme, it wants Beijing to grant a quota of 50 billion yuan (HK$63.6 billion) and US$5 billion, worth a combined HK$100 billion, to allow banks, brokers and insurers in Qianhai to invest directly in Hong Kong stocks, bonds and yuan investment products.

Qianhai, an experimental zone for freer convertibility of the yuan, has already allowed 15 Hong Kong banks to make cross-border yuan loans.

Mainlanders can invest offshore only through the original QDII scheme, launched about 10 years ago, because of capital controls.

Under the scheme, they can buy fund products designed by mainland banks and fund houses, which are granted quotas to invest in Hong Kong or overseas.

Last year, the mainland authorities said they planned to introduce a QDII2 scheme to allow some individual investors to trade directly in Hong Kong securities, but that scheme has yet to materialise.

Weber Lo, Citi's country officer and chief executive for Hong Kong and Macau, said the proposed QDII3 scheme in Qianhai could help increase yuan liquidity in Hong Kong and would lead to the development of more investment products in Qianhai and Hong Kong.

"This will ultimately be beneficial to the development of the financial services industry in the area," he said.

Lo said the three different QDII schemes, working together, could capture a wide investor base.

"In addition, using yuan as an investment currency poses smaller international balance of payments and foreign reserve issues for China," he said.

"And with more streamlined approval procedures on investment products, it can utilise the best capabilities of the financial industry in Qianhai and Hong Kong in product development."

Lo said many of the yuan proposals listed by the council's report last week, such as letting mainland enterprises trade yuan products in the city and expanding cross-border yuan loans, would strengthen Hong Kong's role as an offshore yuan trading centre.

But a local broker said it would be difficult to get Beijing to agree to a QDII3 scheme.

"The proposed QDII3 scheme sounds attractive, and this is what Hong Kong wants," he said. "We have to wait for Beijing to give the approval.

"Beijing said it would approve the QDII2 scheme last year, but we've waited for more than a year and nothing has happened. It will take a long time for QDII3 to become a reality."

Financial services lawmaker Christopher Cheung Wah-fung said many firms that had set up in Qianhai were mainland enterprises, with only a few Hong Kong companies represented.

"This means even if QDII3 were to be implemented, it would be of more benefit to mainland firms seeking to access overseas markets and would bring little business to Hong Kong banks or brokers," Cheung said.

"Unless the scheme requires mainland firms to trade through locally based financial firms, I do not think this proposal would bring much new business to the local financial community."