Print

Mail

wiki links

China may postpone QFII program, despite support

"It will be a very small amount compared to China's overall stock market capitalization, but the system would have a psychological impact on domestic investors."

an analyst

China is likely to postpone a scheme that would open the Hong Kong markets to Chinese investors for the first time, analysts say.

The long-speculated qualified domestic institutional investor (QDII) program would signal Beijing is prepared to relax strict controls on its closed capital account while helping boost Hong Kong's flagging market.

While the plan holds strong support among investors, some Chinese officials fear the scheme could damage China's anaemic state banks and domestic stock markets.

Officials at the China Securities Regulation Commission said no schedule for the plan had been released, amid persistent rumors it was to be unveiled early.

"Since QDII has not been introduced, it shows the authorities are thinking that other structural elements and influences such as the appreciation of the yuan [Chinese currency] as well as worries about domestic A-share markets," said He Qihua, director of China research at JP Morgan. "These concerns are more important than the QDII project itself."

A delay would disappoint investors and the government of Hong Kong.

The scheme was first put forth by the Hong Kong government in 2001 as part of its bid to give the former colony's flagging economy a shot in the arm of China's huge foreign currency reserves.

Zhou Xiaochuan, China's central bank governor, said as recently as last month that Chinese regulators were still hotly debating whether or not to launch the QDII scheme.

Zhou, who is in favor of the plan, highlighted it would be one of China's several strategies to adjust the balance of international payments amid rising foreign exchange reserves.

Yet despite investor eagerness, the plan may be far from coming to fruition, as some officials are reportedly opposed to the plan.

Shang Fulin, chairman of the China Securities Regulatory Commission, is in opposition because QDII could hurt China's flailing domestic capital markets, according to recent media reports.

But analysts argue the QDII system is unlikely to pipe huge capital out of China's stock markets into overseas listed stocks as the qualified foreign institutional investor (QFII) has brought limited foreign capital to China's domestic stock markets, said one analyst.

"It will be a very small amount compared to China's overall stock market capitalization, but the system would have a psychological impact on domestic investors," said one analyst.

"Foreign capital now has a way to come into mainland markets, so the introduction of a QDII project is needed, because domestic capital also needs a way to invest in overseas markets. It would be a helpful way to lead the integration of A-share and H-share and would actually help accelerate the reform of Chinese stock markets," he said.

However, China does have to consider many political economic aspects in terms of international hot money flows, foreign exchange regime reform and support for the Hong Kong administration, before launching the QDII system, said Chen Jian, a finance professor at the People's University in Beijing.

"And that would mean QDII is unlikely to be launched in the near future," he said, adding that if pressure to appreciate the yuan continues, the government might be forced to speed up the process.
This story has been viewed 2248 times.