China's securities watchdog has decided to allow mainland fund management companies to set up branches and representative offices in Hong Kong as of Sunday to promote cooperation in the area of asset management.

Fund companies must seek permission, however, before establishing any such branches, representative offices and subsidiaries, the China Securities Regulatory Commission (CSRC) said in a statement on Sunday.

The CSRC advised applicants to "take full consideration" of the investment environment in Hong Kong as well as their own financial strength and management skill.

Any such expansion should not affect companies' business performance or the interests of fund holders, it said.

Li Feng, a Galaxy Securities analyst, said that such moves would improve the management of domestic fund companies and the development of qualified domestic institutional investors (QDII). He added that neither the mainland nor the Hong Kong stock markets would be affected in the short run.

So far, regulators have granted QDII status to 19 fund companies, and eight of them had raised 122.5 billion yuan ($17.5 billion) by the end of March. The investment went into 35 markets, including the United States, United Kingdom, France, Hong Kong and Japan.

Hong Kong is an important investment destination for QDII funds and the Hong Kong branches of QDII investment consultants play a positive role, said the CSRC.

(Xinhua News Agency May 5, 2008)