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Banking & Finance

Beijing considers reviving outbound investment scheme for domestic investors after three-year hiatus

The Qualified Domestic Institutional Investor scheme was discontinued in 2015 amid rising fears of yuan devaluation and faster capital outflows

PUBLISHED : Thursday, 12 April, 2018, 5:29pm
UPDATED : Thursday, 12 April, 2018, 11:00pm

China is considering reviving an outbound investment scheme that allows mainland financial

institutions to trade in overseas equities and bonds, following a three-year hiatus.

The Qualified Domestic Institutional Investor (QDII) scheme was started in 2006 to allow Chinese investors to trade in overseas assets. By the end of March 2015, it had issued about US$90 billion in quotas, but has since then stopped new issuances, amid rising fears of yuan devaluation and faster capital outflows.

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The rethink on QDII also comes amid rising tensions with the United States, with US President Donald Trump criticising China for the lack of an open market and fair trade practices.

The State Administration of Foreign Exchange, China’s foreign exchange regulator, recently met representatives from banks, insurers, securities companies and mutual fund houses to discuss QDII quota issuance, the official Securities Times reported on Thursday, citing participants.

Officials at a Beijing-based mutual fund house confirmed to the South China Morning Post that the discussion took place, and said the regulator had been considering relaxing outflow controls under the QDII scheme for a while, since the value of the yuan and capital outflows stabilised in late 2017.

Securities Times said the regulator will cap an institution’s total QDII quota at 8 per cent of its fund assets, excluding money market funds. Institutions will not be allowed to apply for a fresh quota if they have used up less than 70 per cent of their existing allocation.

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The State Administration of Foreign Exchange said on its website on Wednesday that it was studying QDII reform and would improve macro-prudential management of the investment scheme “to help build an economy that is open to the world”.

Earlier this year, China resumed another outbound investment scheme, the Qualified Domestic Limited Partnership, after a two-year hiatus. It has granted licences to about a dozen global money managers, Reuters reported in February, in a sign that Beijing was less worried about capital outflows.

China’s foreign exchange reserves rose US$9 billion in March to $3.143 trillion, central bank data showed on Sunday.

Capital flight was seen as a major risk for China since late 2016, but a combination of tighter capital controls and a weakening dollar helped the yuan stage a strong turnaround, and China’s reserves rose for the first time in 2017 since 2014 and its cross-border capital flows went from net outflows to basically stable.

China’s foreign exchange regulator said in late March it expected cross-border capital flows to remain basically stable this year.

Yuan rose 0.8 per cent against the US dollar in March and posted its biggest quarterly gain in a decade during the January-March period.

In 2017, the yuan rose around 6.8 per cent against the greenback, reversing three straight years of depreciation.

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