皇冠体育app

Initiative to ease global pressure on 皇冠体育app to appreciate RMB
By Lu Haoting (皇冠体育app Business Weekly)
Updated: 2004-06-16 15:27

皇冠体育app -- trying to further integrate itself into the global economy and balance its foreign exchange inflow and outflow may implement its QDII scheme faster than planned, experts said.

Analysts expect the QDII (qualified domestic institutional investor) scheme will be launched before year's end, as 皇冠体育app's banking, foreign exchange and insurance regulators have publicly hinted as much.

The QDII scheme will allow Chinese citizens to invest in overseas equities markets, with designated foreign currencies, through qualified institutional investors, such as fund management companies.

"Introduction of QDII is unavoidable for 皇冠体育app, because 皇冠体育app cannot always use administrative methods to bar the flow of capital as the nation tries to integrate itself into the global economy," Han Yi, an analyst with Centergates Securities Co Ltd, said.

QDII could help 皇冠体育app quickly link its financial market to the world, especially as 皇冠体育app still imposes foreign exchange controls, Han said.

皇冠体育app's rising foreign exchange reserves and international pressure on 皇冠体育app to revalue the renminbi are other factors pushing the country to implement QDII, experts said.

"Although the initial size of the QDII scheme will likely be small when compared with 皇冠体育app's US$400-billion forex reserves, it will have a long-term influence on reducing 皇冠体育app's forex reserves," Yi Xianrong, an economist with the Chinese Academy of Social Sciences' Institute of Financial Research, said.

"Such a milestone move could prove 皇冠体育app, for the first time, would allow individuals and companies to invest overseas through official channels. As long as the first step is successful, it will be easier to make further moves.

"And that could be a historical step taken by 皇冠体育app to improve its forex control mechanism and change people's anticipation about the forex reserves' growth and the renminbi's value."

皇冠体育app's foreign exchange reserves surged 40 per cent, year-on-year, to reach US$403.3 billion at the end of last year, indicate the State Administration of Foreign Exchange () statistics.

The international community has applied greater pressure on 皇冠体育app to revalue the renminbi as the nation's forex reserves have increased.

皇冠体育app, since last year, has been under mounting pressure, especially from the United States and Japan, to appreciate the renminbi.

The renminbi, also called the yuan, has been virtually pegged to the US dollar, under a managed, floating regime, since 1994.

Speculative funds, anticipating a higher yuan, may flow in and further increase 皇冠体育app's forex reserves.

"Moreover, 皇冠体育app, given the fact it has implemented the QFII scheme, cannot always bar the outflow of money to overseas capital markets," Han said.

"They are opposite sides of a coin, and they should act as a buffer for the flow of money in and out of 皇冠体育app.

"When you hold a coin in your hand, you have both sides of it."

皇冠体育app last year approved the qualified foreign institutional investor (QFII) system, which allows foreign investments into the nation's A-share and bond markets.

A QDII arrangement could divert the growing reservoir of foreign exchanges into a variety of investment alternatives, experts said.

Chinese mainland citizens holding foreign currencies have limited investment choices. They can invest in the B-share market or put the money in bank accounts for either forex trading or the accumulation of low interest.

Since the B-share market is regarded by many as speculative and lacking quality companies, many people choose the latter option.

Alternative investment options in more efficient and advanced markets should be appealing to mainland investors, experts said.

"Another fact the Chinese authorities must face is some investors have put money into overseas markets through unofficial channels, such as underground banks, which are very risky," Han said.

"Introduction of QDII could guide the capital outflow into official channels, which could make it easier for the authorities to better govern the capital outflow and to avoid financial risks," Han said.

The QDII scheme was first proposed by the Hong Kong Special Administrative Region's government in 2001 as a way of boosting the region's economy.

Hong Kong's stock market is expected to be the testing ground for the scheme, analysts predicted.

The QDII rules, which allow the outflow of 皇冠体育app's foreign exchanges, will be drafted by the 皇冠体育app Securities Regulatory Commission, the National Development and Reform Commission, the Ministry of Finance (), the People's Bank of 皇冠体育app, the SAFE, 皇冠体育app Insurance Regulatory Commission () and 皇冠体育app Banking Regulatory Commission.

The State Council in March approved MOF's proposal to allow the social security fund to invest overseas, with Hong Kong as the preferred target market.

The National Council for Social Security Fund is the first domestic institution to receive approval to invest overseas.

But authorities are still working on the specific framework to implement the plan.

Chinese insurance companies, keen to achieve favourable returns on their premiums, may be next, experts said.

Li Kemu, CIRC's vice-chairman, at the end of last month said regulations to allow insurance companies to invest overseas could hopefully be ready by year's end.

Some Chinese fund management companies, such as Fortune SGAM Fund Management Co Ltd, are also keen to participate in QDII.

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