china story

China is expected to see rising Qualified Domestic Institutional
Investor program


China resumes quotas for overseas investment scheme

* Overseas investment scheme quotas resumed after 17-mths

* Worries over overseas markets ease, capital inflows rising

* EFund Management gets $1 billion QDII quota

SHANGHAI/BEIJING, - China has resumed issuing quotas under its scheme
to allow domestic investors to put money into overseas markets after a
17-month halt as global markets stabilise and it seeks ways to channel
its mounting foreign exchange reserves.

EFund Management Co has been issued a $1 billion quota by the State
Administration of Foreign Exchange (SAFE), China's foreign exchange
regulator, under the country's Qualified Domestic Institutional
Investor (QDII) scheme, a company executive said.

"China's foreign exchange reserves are growing very rapidly, so there
should continue to be issuance of additional quotas," the executive
said, speaking under condition of anonymity.

China is expected to see rising capital inflows in the second half of
this year as expectations mount for appreciation of its yuan currency,
and authorities are keen to seek ways to channel funds abroad.

The government started the QDII programme in 2006 to allow Chinese
money to be invested abroad, but early investors suffered badly from
the global financial crisis.

China effectively halted the issuance of new QDII quotas following the
last approval in May 2008, reflecting the worsening performance of
QDII funds as global market conditions deteriorated.

Investor confidence has picked up in recent months, however, as global
stock markets rebounded on hopes that the worst of the financial
crisis and economic downturn are over.

The EFund executive said late on Friday that the company was aiming to
sell funds focusing on equities in Asia excluding Japan, with a formal
product launch expected in December.

China had granted QDII licences to 27 fund management companies, but
only nine issued QDII products after receiving a combined quota of
$29.5 billion.

SAFE had issued $55.95 billion in QDII quotas to 56 institutions,
including other financial institutions as well as fund companies, as
of the end of September, according to its website

E Fund Management Co. received a $1 billion quota from the Chinese
government to invest abroad under the qualified domestic institutional
investor program as the nation sees less risk in investing overseas.

Guangzhou, southern China-based E Fund will use its QDII quota for an
Asia-focused fund, spokeswoman Ai Liqun said by phone today. China
Merchants Fund won a $500 million quota under the program, the Wall
Street Journal said, citing unidentified people. Calls to China
Merchants’ marketing department weren’t immediately answered.

China, which lets citizens buy overseas stocks and bonds only through
QDII funds, is expanding the program’s scope for the first time in 17
months after domestic economic growth accelerated in the third quarter
and Japan, France and Germany exited recession in the second quarter.
The regulator may issue more than $4 billion of new quotas, Z-Ben
Advisors estimates.

“The global economy has started picking up under various stimulus
plans and so the government feels more comfortable with allowing
investments abroad,” said Li Wei, a Beijing-based analyst at Galaxy
Securities Co. “The approved quota is a small amount.”




" QDII funds to receive new quotas"

by Shanghai Daily

CHINA has granted new quotas to domestic funds to invest in overseas
securities for the first time in 17 months, reflecting the country's
stepped-up effort to diversify foreign-exchange assets as the global
economy recovers.

E Fund Management obtained a US$1 billion quota from China's forex
regulator while China Merchants Fund Management was granted US$500
million under the Qualified Domestic Institutional Investor program,
company sources said yesterday.

The approvals were given on Friday to E Fund and China Merchants Fund,
both of which are based in Shenzhen. Company officials said yesterday
they would issue statements to announce the news soon.

Sources close to the State Administration of Foreign Exchange said
that more domestic fund companies are expected to receive new quotas
in the coming weeks as the country moves to boost the QDII program.

"It's a signal that regulators have deemed that the worst of the
global financial crisis has passed," said Wu Zhiguo, a Guohai
Securities Co analyst. "They might think it's much safer to channel
forex capital outside for diversification now than it was a year
before."

The QDII program, launched in 2006, allows domestic lenders, fund
houses, securities brokers and insurers to trade stocks and bonds
overseas. Each institution must apply to the SAFE for a forex quota
before investing abroad.

The last domestic financial firm allowed to invest in overseas
securities was Bank of Communications Schroder Fund Management, which
obtained a US$2 billion QDII quota in May 2008. By then, 56 Chinese
institutions had been granted a combined quota of US$55.95 billion
under the QDII program.

After that, Chinese financial regulators virtually suspended granting
investment limits on concern over volatility in overseas markets and
the negative effect of capital outflow on domestically traded
securities, sources said.

"One of the biggest regulatory worries is that hot money could flow
back and inflation may be stronger than expected," said Chen Weiheng,
an investment adviser at the Bank of China. "The resumption of the
QDII program is the countermeasure."

Forex surge

China's forex reserves surged US$141 billion in the third quarter to a
record US$2.273 trillion, the People's Bank of China said on October
14. Some economists believe the nation's economic recovery has helped
to lure back speculative capital.

China's economy advanced 8.9 percent in the July-September period,
compared with a rise of 7.9 percent in the second quarter and 6.1
percent in the first, as investment and consumption continued their
strong momentum.

The inflows of foreign capital are likely to help cause consumer
prices to rise and complicate the country's implementation of a loose
monetary policy to sustain its economic rebound, analysts believe.

Sources said that at least a dozen more domestic fund houses,
including Changsheng Fund Management and Bosera Asset Management, have
applied for quotas