Qualified Domestic Institutional Investor

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A qualified domestic institutional investor (QDII) is an investment system which has the purpose of further relaxing the control on capital accounts in order to create more demand for foreign exchange, so that the appreciation of the RMB would slow down and more domestic enterprises would be encouraged to go out of China and thereby reduce the trade surplus.

QDIIs were first proposed by the Hong Kong government, and like QFIIs (but in the opposite direction), under the control of capital accounts, meant to allow domestic investors to invest in overseas capital markets.

China International Capital Corp. was China’s first brokerage firm to offer a new fund under the country’s QDII program. The $5 billion fund — managed by CICC’s Hong Kong subsidiary — differs from existing QDII investment products in that it gives Chinese investors greater flexibility to limit their exposure to equity market volatility during a bear market without the need to limit their exposure when a bull market is in full swing. [1]

The potential of the People’s Republic of China outward investment potential is considerable. In June 2007, the National Bureau of Statistics in China announced the country’s foreign exchange reserves reached $1.33 trillion (£663 billion), with a trade surplus of an impressive $112.5 billion (£566 billion) for the first six months of the year.[2]

QDII Development In China

  • In July of 2001, Hong Kong government proposed QDII for the first time to strengthen Hong Kong as an international financial center.
  • In October of 2001, China Securities Regulatory Commission acknowledged considering adopting QDII as proposed by Hong Kong government.
  • In December of 2002, the Qualified Foreign Institution Investors (QFII) program began. Under this program QFII are allowed to invest in local currency and use the specific accounts investing in the local securities markets. The return of the investment, including dividend and capital gain from the investment, can be legally exchanged into foreign currency and repatriated.
  • March of 2006, the first overseas investments were revealed.
  • In April of 2006, a formal rollout of the QDII policy was implemented.
  • In May of 2007, China Banking Regulatory Commission stated that QDIIs operated by banks can invest in the stock-related products. Securities companies were allowed to issue QDII products. The net value of a QDII product investment in stocks must not exceed 50 percent, with the net value represented by a single stock capped at five percent.[3]


References

  1. China: Wooing Investors Away from Shares. Stratfor.
  2. Asia: Opening the Market. LegalWeek.com.
  3. QDII. Donghai Securities.