China awards new QDII quotas

The $3.36bn worth of quotas granted to 18 institutions under the Qualified Domestic Institutional Investor (QDII) scheme were the first since April 2019, according to data from China’s foreign exchange regulator.

Launched in 2006, the QDII programme allows institutions and fund managers to invest offshore within allowable quotas.

The decision to award new quotas seems to have been driven by strong investor demand for exposure to overseas markets, and confidence in the renminbi’s resilience.

Sharp falls in global stock markets and the value of QDII funds in March encouraged domestic investors to go bargain-hunting, which threatened to exhaust the foreign exchange quotas of several asset managers.

E Fund Management, China Asset Management and HuaAn Fund Management were among several firms which suspended subscriptions for some of their QDII products.

Domestic fund managers and securities firms were the main beneficiaries of the fresh quotas. Orient Securities Asset Management, CIB Fund Management, Wanjia Asset Management and Tebon Securities were awarded quotas for the first time (all receiving $200m each except Tebon), while 12 others received additional allocations, mostly amounting to $200m each, according to State Administration of Foreign Exchange (Safe) data.

Of these firms, only Invesco Great Wall Fund Management has a foreign partner.

New recipients of a quota include PSBC Wealth Management, a subsidiary of Postal Savings Bank of China, which was one of six wealth management subsidiaries set up by large state-owned banks in December 2019, after regulators banned them from providing implicit guarantees to their wealth management products.

Institutions with QDII licenses fall into four broad segments, including banks, insurers, trust companies and securities firms/fund managers.

The latter has the highest quota volume, worth $4.99bn shared by 62 firms, up from $4.68bn and 58 firms before the fresh quotas were given, according to Safe data.

The holders of the largest QDII quotas are China Asset Management ($3.65bn), Harvest Fund Management ($3.6bn), Citibank China ($3.4bn), HSBC China ($3.4bn), and E Fund Management ($3.05bn).

Currency perspective

Safe’s decision to allow more outbound flows comes as the renminbi has strengthened against the dollar over the past weeks.

The currency has appreciated 4.7% against the US dollar since its low of RMB 7.16 on 27 May, due to a combination of the relative recovery of the Chinese economy compared with the rest of the world, inflows and headwinds for the greenback.

It is now trading at around RMB 6.82, according to Morningstar data,

New QDII quota allocations were suspended for three years from 2015 when China’s stock market crash triggered massive capital outflows. They were resumed in April 2018 and 24 firms received fresh QDII quotas of $8.33bn.

Before the latest move by Safe, the most recent new quotas were granted in April 2019.

QDII first-time approvals

Source: State Administration of Foreign Exchange, 23 September 2020

QDII additional quotas

Source: State Administration of Foreign Exchange, 23 September 2020