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China raises overseas investment quota to US$15b

(Xinhua)
Updated: 2007-05-17 15:58

The Nanyang Commercial Bank has become the first Chinese bank in three months to have received a foreign currency quota for overseas investment, ending a three-month suspension of quota offers.

Related readings: China allows banks to buy overseas stocks Banks able to invest in foreign stocksMonetary chief eyes QDII expansion to cement HK's status China to loosen restrictions on QDII overseas investment

The nineteen banks holding qualified domestic institutional investors (QDII) status shared a combined quota of 15 billion U.S. dollars, including a new increase of 300 million U.S. dollars, said the State Administration of Foreign Exchange in a statement.

Ding Zhijie, deputy dean of the Financial Institute of the University of International Business andEconomics, said the quota offer resumption together and a recent easing of the prohibition on stock investment prohibition indicated the willingness of the government to facilitate foreign currency outflow to ease the imbalance of international payments.

Market enthusiasm for the QDII scheme launched in July last year had cooled as many investors feared a rising yuan would eat into their investment return, which came only from fixed-income products and money-market products.

Under the revision released by theChina Banking Regulatory Commission(CBRC), QDIIs can invest up to 50 percent of their overseas investment in stocks, with a single holding capped at five percent of a product's asset value. Stock investment, however, is still restricted to Hong Kong.

Guo Jianning, senior manager of the investment and assets department of the China Minsheng Banking Corporation, said the revision had given a spur to QDII services as domestic investors could expect higher yields.

Many banks have started to design new products targeting domestic investors in line with the new measures. "It's exciting and challenging," she said.

Hong Kong Acting Financial Secretary Steven said these measures would facilitate the orderly outflow of funds from the mainland and fully utilize Hong Kong's advantages as an international financial center.

BNP Paribas Securities (Asia) predicted that capital inflow for the next 12 months could be 25 billion U.S. dollars and that the Hang Seng Index was expected to rise by 20 to 30 percent.