CHINA / Backgrounder
QDII
(Int'l Financial Law Review)
Updated: 2006-09-26 10:20
QDII (Qualified Domestic Institutional Investors) is an investment scheme
that works opposite the QFII (Qualified Foreign Institutional Investor).
It is a scheme under which domestic institutional investors authorized by
the government could invest in the overseas capital markets under the
foreign exchange control system in China.
QDII was initially proposed by the Hong Kong government to introduce
mainland capital to the Hong Kong securities market and to attract more
international capital, which was significant to the low-priced Hong Kong
securities market after the Asian financial crisis. When QDII was first
proposed, the China Securities Regulatory Commission was enthusiastic in
promoting the scheme. On the other hand, the State Administration of
Foreign Exchange's response was lukewarm, due to foreign exchange control
concerns. However, now the table has been turned. Due to growing pressure
on the appreciation of renminbi, SAFE is now more active in promoting the
scheme, to maintain the stability of the RMB exchange rate, but the
Securities Regulatory Commission is becoming more conservative, because
the formal adoption of such a scheme might affect the A and B share
markets.
Hua'an Fund was the first pilot project for QDII and was only allowed to
use hard currency, instead of RMB, for its investment, to reduce risks in
connection with QDII. Many banks in China are laying the ground work in
preparation for the formal adoption of QDII. While the attitude of
various government departments is becoming more receptive to QDII, it is
unclear when the scheme will be formally adopted in China.
Judging by successful experiences from other countries and districts,
QDII is an effective scheme to assure the steady transition of all market
aspects during the gradual process of opening the domestic market to
foreign capital. With the process of opening up the domestic securities
market, the full adoption of QDII is only a matter of time.
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