USD$3.36 Billion QDII Quota Launched to Support Dual Circulation, Financial Opening

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The State Administration of Foreign Exchange (SAFE) has approved a new quota for Qualified Domestic Institutional Investors (QDII’s) in China in order to support the central government’s economic policy of “Dual Circulation.”

SAFE has provided a QDII quota of USD$3.36 billion to 18 financial institutions including funds, securities firms and wealth management subsidiaries, according to a 24 September report from the Chinese central bank’s official news outlet.

The 18 financial institutions include five institutions that have obtained approvals from Chinese regulators for the first time.

As of 23 September 2020 China was host to 157 QDII’s that have obtained approval for a total investment quota of $107.343 billion.

QDII’s are domestic institutional investors in China that have obtained approval from regulators to invest in offshore securities and bonds, under a scheme first launched in 2006 and overseen by the China Securities Regulatory Commission (CSRC) and the China Banking and Insurance Regulatory Commission (CBIRC).

Wen Bin (温彬), chief economist with China Minsheng Bank, said that the new quotas were part of efforts to accelerate financial opening and support a “dual circulation” economic policy that stresses the mutually complementary relationship between domestic and foreign markets.

“In recent years SAFE has deeply implemented reforms of the QFII regulatory system to drive opening of the domestic bond market, and continually made it more convenient for offshore investors to invest in domestic financial markets.

“The launch of the new QDII quota is in the same vein as these previous opening policies, and evinces the determination of China to expand foreign opening. It will help to drive high-level opening of financial markets.”

Wen highlighted a number of key roles that QDII would play in opening of China’s financial markets including:

  1. Serving as complement to the Qualified Foreign Institutional Investor (QFII) scheme and expanding domestic investment channels, to satisfy the needs of domestic investors for offshore investment and asset allocation;
  2. Helping to drive internationalisation of Chinese financial institutions and drive the domestic capital market to become consistent with international practices;
  3. QDII’s are of benefit to adjusting cross-border fund flows, guiding orderly fund flows, and expediting “basic balance” in the international balance of payments.

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