QDII: China’s Investment Rules Get a Makeover

China plans to loosen restrictions on QDII investment targets so that they can invest in new sectors. QDIIs are currently allowed to invest only in fixed-return financial products. China's QDII program is still in its infancy & the products are not selling well because of the narrow investment scope, high risks, low profits & poor accessibility. Furthermore, investors, both companies & individuals, would rather hold Renminbi than convert them into foreign currency because the yuan keeps on appreciating.

China launched the QDII system in July 2006, allowing QDIIs to raise Renminbi funds from domestic individuals & institutions & buy foreign currency from the State Administration of Foreign Exchange (SAFE) for overseas investment. So far, 30 financial institutions, 11 domestic banks, seven foreign banks, 11 insurance companies & one mutual fund, have been granted QDII status.

QDII – What is it?

• QDII stands for Qualified Domestic Institutional Investor
• A plan that allows mainland investors to invest in overseas equities
• Current quota is at $10.3 billion

QDII - Participants

• Banks
• Insurance Companies
• Mutual Fund Managers

QDII - Potential Investments

• Stocks
• Fixed Income

QDII - Effects

•Exchange rate moderation
•Liquidity Siphoned
•Trade surplus & capital outflows

From: www.usfunds.com