China's foreign exchange authority has granted overseas investment quotas totaling US$4.8 billion to three qualified domestic institutional investors (QDII).

 

According to the announcement from the State Administration of Foreign Exchange (SAFE), the Bank of China, the Industrial and Commercial Bank of China and the mainland subsidiary of the Bank of East Asia have been approved to invest sums of US$2.5 billion, US$2 billion and US$300 million respectively on behalf of their clients.

 

The QDII scheme allows mainland institutions and residents to entrust mainland commercial banks with investments in overseas financial products, and allows insurance institutions to invest part of their assets in overseas fixed-income products and money-market products.

 

This is the first time that Chinese commercial banks are being granted such quotas, the Xinhua-run Shanghai Securities Journal reported.

 

The China Construction Bank, the Bank of Communications, and the Hong Kong & Shanghai Banking Corp. have also submitted their QDII quota applications to SAFE.

 

Due to expectations of further Renminbi appreciation, huge amounts of foreign exchange have flowed into China in recent years, putting pressure on the yuan.

 

The QDII policy will help ease that pressure by encouraging the outflow of domestic funds.

 

In addition to the QDII, the central government launched the QFII (qualified foreign institutional investor) pilot program in 2003, allowing foreign institutional investors such as UBS, Deutsche Bank and Citigroup Global Markets Limited to engage in the securities business on the Chinese mainland.

 

To date, 42 foreign investment institutions have been approved as QFIIs and SAFE has awarded investment quotas totaling US$7.145 billion to QFIIs.

 

The QDII quota is reportedly expected to exceed this, possibly going as high as US$10 billion, after the other three banks' applications are approved.

 

(Xinhua News Agency July 24, 2006)