China has resumed approvals for institutions to buy overseas securities under its tightly managed offshore investment regime after a 17-month hiatus, suggesting Beijing believes the worst of the financial crisis is over.
The State Administration of Foreign Exchange granted new quotas to E Fund Management and China Merchants Fund Management to invest up to $1bn and $500m respectively in offshore securities, according to industry analysts.
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The previous quota handed out under the qualified domestic institutional investor (QDII) scheme was granted in May 2008, before the worst of the financial crisis.
The resumption in approvals for outward investment also signals a return to Beijing’s earlier strategy of encouraging outflows to relieve pressure on the Chinese currency to appreciate.
As China’s largest trade partners in the west start to look past the immediate aftermath of the crisis, attention has turned again to the renminbi, which remains undervalued by most estimates and is still virtually pegged to the sliding dollar.
China’s huge trade surplus and large investment inflows create pressure on the renminbi to rise, but Beijing is unwilling to subject its battered export sector to any more pain, in spite of calls from trading partners for appreciation.
“In order to keep the nominal exchange rate stable the government has to allow more capital to flow out,” said Wang Tao, chief China economist at UBS Securities. “But they want to encourage outflows in a controlled way and as long as they have some kind of upper quota they will not be able to fully offset the appreciation pressure from inflows.”
Beijing has also been encouraging more direct investment by Chinese corporations in offshore industries and is considering allowing foreign institutions to raise capital through equity and bond sales in China; both actions encourage capital to flow out of the country.
Following a brief dip at the start of the year, China’s foreign exchange reserves have resumed their rapid growth, rising from $1,913bn at the end of January to $2,273bn by the end of September.
Z-Ben Advisors, a Shanghai-based consultancy covering China’s investment management industry, said at least four other fund managers – Changsheng, Bosera, UBS SDIC and China Universal – would receive quotas of at least $4bn in total by year-end, and they expect at least another 16 to be handed out by the end of next year.
“Friday’s events signal strongly to us that the QDII business is about to accelerate very quickly,” according to Michael McCormack, executive director at Z-Ben Advisors.
Beijing had previously approved 56 QDII institutions to invest a total of $55.95bn but of that total just $28.71bn had been remitted abroad by the end of August, according to Safe data.
The lacklustre utilisation of the scheme prompted Safe to warn this month that it would reduce quotas of QDII investors who did not make full use of them.
E Fund is expected to use its new quota to set up a fund that invests in securities in Asia minus Japan, while China Merchants is believed to be planning a global resources fund.
The State Administration of Foreign Exchange granted new quotas to E Fund Management and China Merchants Fund Management to invest up to $1bn and $500m respectively in offshore securities, according to industry analysts.
EDITOR’S CHOICE
In depth: China - Jul-28
China quietly eliminates investment quota renting - Oct-18
Short View: Chinese growth - Oct-22
China growth underlines rapid rebound - Oct-22
Questions remain over China’s consumer power - Oct-22
China flat-screen boom fuels production race - Oct-23
The previous quota handed out under the qualified domestic institutional investor (QDII) scheme was granted in May 2008, before the worst of the financial crisis.
The resumption in approvals for outward investment also signals a return to Beijing’s earlier strategy of encouraging outflows to relieve pressure on the Chinese currency to appreciate.
As China’s largest trade partners in the west start to look past the immediate aftermath of the crisis, attention has turned again to the renminbi, which remains undervalued by most estimates and is still virtually pegged to the sliding dollar.
China’s huge trade surplus and large investment inflows create pressure on the renminbi to rise, but Beijing is unwilling to subject its battered export sector to any more pain, in spite of calls from trading partners for appreciation.
“In order to keep the nominal exchange rate stable the government has to allow more capital to flow out,” said Wang Tao, chief China economist at UBS Securities. “But they want to encourage outflows in a controlled way and as long as they have some kind of upper quota they will not be able to fully offset the appreciation pressure from inflows.”
Beijing has also been encouraging more direct investment by Chinese corporations in offshore industries and is considering allowing foreign institutions to raise capital through equity and bond sales in China; both actions encourage capital to flow out of the country.
Following a brief dip at the start of the year, China’s foreign exchange reserves have resumed their rapid growth, rising from $1,913bn at the end of January to $2,273bn by the end of September.
Z-Ben Advisors, a Shanghai-based consultancy covering China’s investment management industry, said at least four other fund managers – Changsheng, Bosera, UBS SDIC and China Universal – would receive quotas of at least $4bn in total by year-end, and they expect at least another 16 to be handed out by the end of next year.
“Friday’s events signal strongly to us that the QDII business is about to accelerate very quickly,” according to Michael McCormack, executive director at Z-Ben Advisors.
Beijing had previously approved 56 QDII institutions to invest a total of $55.95bn but of that total just $28.71bn had been remitted abroad by the end of August, according to Safe data.
The lacklustre utilisation of the scheme prompted Safe to warn this month that it would reduce quotas of QDII investors who did not make full use of them.
E Fund is expected to use its new quota to set up a fund that invests in securities in Asia minus Japan, while China Merchants is believed to be planning a global resources fund.
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