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Beijing moves to let local companies invest abroad
By Richard McGregor in Beijing
Published: November 9 2005 02:00 | Last updated: November 9 2005 02:00
Beijing is accelerating longstanding plans to allow local institutions to invest overseas, a move that could begin to unlock a portion of the billions of dollars of foreign currency now mostly sitting in low-return Chinese bank deposits.
The government departments with responsibility for handling the issue have agreed to submit a scheme for overseas portfolio investment to the central government for approval, according to market commentators and reports in the local media.
The scheme, known in China as the Qualified Domestic Institutional Investor (QDII) programme, would allow Chinese mutual funds and perhaps also companies to invest their foreign currency holdings abroad.
The scheme has been held up by the central government‘s concern about the ability of institutions to properly manage risk in investing overseas, as well as by disagreements between agencies over the issue.
Agencies clustered around the central bank have generally supported QDII, which they think will diversify Chinese investment products and ease the impact of large capital inflows into China, whereas stock market regulators fear any outflow could harm local share prices.
However, the ability of agencies to submit a single plan to the State Council, China‘s cabinet, suggests that they have begun to surmount their divisions.
"A major breakthrough appears to be on the horizon," said Peter Alexander, of Z-Ben Advisors, a consultancy-based in Shanghai.
Mr Alexander said the State Council‘s approval could take "months rather than years", allowing a pilot scheme to start in early 2006.
China has already begun experiments with a form of QDII by allowing its large insurance companies to keep money raised in overseas initial public offerings offshore.
Ping An has approval to invest $1.75bn (鈧?.5bn, 拢1bn) in foreign markets, while China Life and PICC, two other overseas-listed companies, have applied for similar permission.
But the lead in investing money directly from China is likely to be taken by Hua‘an Fund Management, based in Shanghai. Hua‘an declined to comment yesterday but local fund managers said the firm had already begun preparations for a foreign-currency overseas fund.
Once the scheme has been established, the authorities may extend it to allow ordinary renminbi savings to be invested overseas through mutual funds.
The health of the local stock market, which has languished for years, remains a lingering concern in any extension of QDII.
A fund manager with Southern Securities, who asked not to be named, said QDII would have little impact to begin with as it would be restricted to foreign currency.
"But as fund management companies account for over 40 per cent of the capital floating locally, the launch of QDII will prompt a lot of money to swarm overseas," he said.
"So, in the long run, the liquidity of domestic markets will get further squeezed because there are more profitable investments to be made overseas."
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