China Financial Management Expanding Into U.S.

MoneyNews
Monday, March 31, 2008

The overseas financial management services of China's approved commercial banks will soon expand into the U.S. market.

According to Li Fu'an, Director General of the Supervisory Cooperation Department for Banking Innovation, the China Banking Regulatory Commission may soon sign an agreement with U.S. regulators that will allow banks approved under the regulator's Qualified Domestic Institutional Investor (QDII) program to buy U.S. stocks and bonds.

The U.S. equities investment plan aims to broaden China's investment channels, diversify commercial investment risks and provide greater capital outflows to help China to stabilize the value of the Chinese yuan, still under pressure due to increasing capital levels in China created by foreign investment and trade surplus.

The strictly controlled QDII program allows approved brokerages and fund management companies to raise money in yuan or foreign currencies from institutions and individuals in China for overseas investment.

By the end of last year, 23 domestic and foreign-invested banks had gained the license for QDII business, and 16 of them have launched 262 QDII products, with total sales revenue of $1.2 billion.

However, in a statement posted on its Web site, assistant CRBC chair Wang Huaqing said that the organization plans to expand overseas investment possibilities by moving gradually from developed capital markets to include emerging market economies.

Wang also said that commercial banks should gradually reduce their dependence on overseas investment products and increase their ability to independently develop and manage investment themselves.

He stressed that approved Chinese banks must strictly abide by the regulations on the limits on stock investment percentage in their portfolios, prudently formulate investment strategies, reinforce portfolio management, and effectively manage risk through diversification.

The UK, Singapore, Hong Kong, and Japan are the only foreign markets currently approved for QDII investment, and all received approval since last May.

The CBRC added Tokyo-listed stocks and mutual funds to its list of approved offshore destinations for investment funds managed by its commercial banks last month, opening the way for money from China's cash-rich economy to enter Japanese capital markets.

At present, most of the QDII financial products launched are only in the Hong Kong market, though Standard Chartered Bank has launched two in Singapore; one will invest in PRU Global Basics Fund, and the other will invest in PRU Asia Infrastructure Equity Fund.

Begun in 2006, China's QDII plan allows investors to buy foreign securities markets through certain fund management institutions, insurance companies, securities companies and other assets management institutions approved by the China Securities Regulatory Commission.

Originally limited to fixed-income and money market products, QDII was expanded to include stocks on the conditions that the net value of a QDII product investing in stocks must not exceed 50 percent, with the net value represented by a single stock capped at 5 percent, and the minimum commitment by each client is 300,000 yuan.

The CRSC has also issued new rules that tighten control over mutual funds by requiring that fund-management firms increase supervision over information gathering and provide data evidence to support their investment decisions. The new rules also forbid collaboration among institutional investors, according to a Shanghai Securities News report

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