China granted US$9.02 billion of fresh quota for foreign investments to 21 fund managers, banks and securities firms, the third in three months under the Qualified Domestic Institutional Investors (QDII) programme.
A total $8.15 billion of quota was granted to 14 fund managers, including China Southern Asset Management and Harvest Fund Management, and $870 million to seven banks and securities firms, including Citibank (China) and Hang Seng Bank (China).
They were awarded by the State Administration of Foreign Exchange (SAFE), the supervisor of China’s foreign reserves, which made the announcement in a statement dated January 13 published on its website.
The QDII programme allows domestic institutions and fund managers to invest in offshore assets within allowable quotas.
Beijing has now awarded $125.72 billion of quota in total to 171 domestic institutions since the scheme was introduced in 2006.
Fresh quotas were granted every year until the scheme was suspended in 2015 to stem capital outflows triggered by renminbi devaluation and overborrowing.
SAFE resumed awarding quotas in April 2018. Before last week, it granted two batches in the latter part of 2020: $3.36 billion in September and $9.02 billion in November.
Beijing will likely award even more quotas this year given growing demand for foreign investments from Chinese investors, according to Alwyn Li, a partner at Hong Kong law firm Deacons.
“Many Mainland investors are no longer allowed to open offshore investment accounts in Hong Kong with the Covid-19 travel ban. As such, they will have to rely more on QDII products to allocate their money overseas,” Li tells Asia Asset Management (AAM).
Chinese fund managers are keen to apply for the quota to launch US active funds or foreign-linked exchange-traded funds, according to Rachel Wang, director of manager research for China at fund advisory firm Morningstar.
“Most QDII quotas are usually drawn down for the investment of US equities instead of Hong Kong stocks as Mainland investors usually utilise the Stock Connect programme as an alternative avenue to invest in Hong Kong securities,” Wang tells AAM.
Stock Connect is a cross-border channel that allows investors in China and Hong Kong to invest in each other’s markets.