Authorities are said to be waiting for the right time, as policy goals for foreign-exchange stability favour an end to delays The mainland's long-delayed qualified domestic institutional investor (QDII) scheme could be introduced within weeks as the central government seeks to maintain a stable foreign exchange and mop up excess liquidity. 'Everything is ready, as we understand,' a Shanghai-based fund manager at one of the mainland's biggest brokerages said. 'It's only finding the right time and the coming weeks may be it.' Mainland official newspapers last week were awash with reports that QDII rules would be in place shortly. 'China needs to adopt QDII as a prelude to convertibility in the capital accounts,' a commentary in the official Shanghai Securities News said last Friday. The scheme would loosen restrictions on capital outflows and ease the longstanding trade imbalance, the newspaper said. The scheme has been stalled since March last year on fears of an outflow of an estimated US$150 billion in foreign-currency bank deposits. It is understood that wrangling between government bodies and ministries also stood in the way. The China Securities Regulatory Commission (CSRC), under moderate chairman Shang Fulin, has pledged that while ensuring the stock markets' advancement was crucial, it should not be at the expense of the millions of small investors hurt by the sluggish A-share markets. 'The CSRC would be concerned that QDII would sap the interest in A shares,' a banker said. In the past month, the Shanghai A-Share Index has lost 6 per cent and its Shenzhen counterpart 5 per cent. Proponents of QDII, such as the China Insurance Regulatory Commission, view the scheme as another way to increase assets and spread risks. The qualified foreign institutional investor (QFII) scheme has failed to deliver the results regulators hoped for: stability in the volatile domestic A-share markets and capital to revive sentiment. Instead, regulators and bankers said the QFII scheme had created a parking space for hot money as investors, capitalising on China's opaque banking system, channelled funds into the country not for A shares but a possible revaluation of the yuan. The State Administration of Foreign Exchange (SAFE) last month warned foreign investors that they might have to hand back investment quotas if they kept funds in banks to bet on a revaluation. To date, 12 international financial institutions have been allowed to invest US$1.8 billion under the QFII scheme. In addition, the central government last week introduced rules to restrict foreign-currency borrowings by foreign banks, requiring them to apply to SAFE for short-term loans of less than a year and to the National Development Reform Commission for longer-term loans. The rules reversed the mainland's traditional policy of encouraging foreign banks to bring in capital and aim at easing the pressure on a revaluation of the currency. The China Banking Regulatory Commission is also reportedly keen to see the scheme launched as it seeks to maintain a stable foreign exchange and soak up excess liquidity. In Hong Kong, many believe the scheme promises further reach than the initial funds that are expected to roll in. 'The scheme will boost the Hong Kong stock market in the sense of raising international investment interest and in turn those of local retail investors,' Core Pacific-Yamaichi research director Alex Tang Yee-yuk said.