New QDII quotas released as China counters hot money
China has granted new quotas to two mainland funds, allowing them to invest in overseas securities. It is the first expansion of the Qualified Domestic Institutional Investor (QDII) program for 17 months.
Local press today reported that E Fund Management was awarded a US$1 billion quota from China's forex regulator and China Merchants Fund Management US$500 million under the QDII program.
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.
The QDII program was launched in 2006 and allows domestic banks, funds, brokers and insurers to trade overseas stocks and bonds.
As of May 2008, 56 institutions were granted a combined quota of US$55.95 billion under the QDII program. Until now no other quotas had been granted due to uncertainty during the global financial crisis.
The current move is probably timed to counter-measure the recent return in of "hot money" flowing into China. According to Hexun.com, US$40bn of speculative "hot money", calculated by subtracting the trade surplus and foreign direct investment from total foreign currency reserves, flowed into China in September compared to none in August.
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