China Market Snapshot QDII

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Market Snapshot – China.
November 2010

Data Alert

19 January 2010

Qualified Domestic Institutional Investors (QDII)
What is a QDII?
QDII refers to a China qualified domestic institutional investor which has approval from the relevant Chinese authority (see below) to raise funds in Mainland China and to use the proceeds to invest offshore through a quota granted by the State Administration of Foreign Exchange (SAFE).

Type of QDII Entity Bank Trust Company Securities Company & Fund Manager Insurance Company

Relevant Authority China Banking Regulatory Commission (CBRC) China Banking Regulatory Commission (CBRC) China Securities Regulatory Commission (CSRC) China Insurance Regulatory Commission (CIRC)

QDII Scheme
The QDII scheme is considered the reverse of the Qualified Foreign Institutional Investor (QFII) regime. It allows authorised domestic institutional investors to invest funds outside China, in products such as securities and bonds. For a country, like China, there are restrictions on currency trading and capital flows in and out of the country, the QDII scheme is a transitional arrangement that provides limited opportunities for domestic investors to access foreign markets. The origin of the QDII scheme was the Chinese Government’s decision in September 2004 to allow insurance companies to invest their foreign currency premiums in overseas markets. Ping An Insurance (Group) Company of China was the first Chinese insurer to receive a QDII quota of US$8.89 billion on 14 December 2004. This was extended in April 2006 with China’s QDII scheme officially launched with the People’s Bank of China (PBoC) publishing its Circular No. 5 which formally opened-up the overseas investment to approved banks, funds management firms and insurance companies, subject to a quota system administered by SAFE. The Bank of China was the first bank to receive a QDII quota of US$1 billion on 10 July 2006. In September 2006, HuaAn Fund Management Co. Ltd. became the first funds management company to receive a (US$500 million) QDII quota. Although the QDII scheme is commonly referred to as a single unified regime, in reality the relevant regulator for each type of investor has been issuing rules for the institutions under its jurisdiction, with differences between each. Application for a QDII quota for the overseas investment must be made to SAFE, but unlike the QFII regime, there is no official concept of a capped total quota for QDIIs.

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Market Snapshot – China.
November 2010

Data Alert
Approved Investment Scope
The investment scope and trading limits differ having regard to the category of QDII entity.

19 January 2010

Type of QDII Entity Bank

Investment Scope Subject to certain restrictions, qualified banks may invest in overseas fixed-income products (such as bonds and notes), structured and derivative products and certain equity products (such as shares and public funds). However, a QDII bank cannot invest in commodity derivatives, hedge funds and securities below a ‘BBB’ credit rating. Subject to certain restrictions, a qualified trust company may invest in overseas money market products (including bank deposits), bonds, derivative products and other instruments as permitted by CBRC. Subject to certain restrictions, a QDII securities firm or fund manager may invest in overseas money market products (including bank deposits), bonds, stocks, public funds and structured and derivative products. Subject to certain restrictions, a QDII insurance company can invest in money market products (including bank deposits), fixed income products and certain equity products (including shares and funds).

Trust Company

Securities Company & Fund Manager

Insurance Company

Source: Mallesons Stephen Jaques

In respect of equity investment by a QDII bank, shares to be invested in must be listed on an overseas stock exchange in a region or country that has signed a memorandum of understanding (MoU) or supervisory cooperation agreement with the CBRC. By the end of June 2010, the CBRC had respectively signed MoUs and supervisory cooperative agreements with securities supervisors in 11 countries and regions. Australia was formally recognised by the CBRC as an approved QDII jurisdiction after the Australian Securities and Investments Commission (ASIC) reached a formal agreement with the CBRC on 10 June 2008. This means that approved Chinese investors are able to invest in Australian-listed stocks and managed investment schemes registered by ASIC, as well as engage the services of Australian fund managers authorised by ASIC to assist with QDII investment matters.1

Approved QDII Destinations by CBRC (MoUs and Letters of Exchange signed as of June 2010)
Country/Region Hong Kong SAR United Kingdom Singapore Japan United States Australia Korea Luxemburg Germany Canada Malaysia
Sources: CBRC, media reports, Austrade

Overseas Regulators Securities and Futures Commission (SFC) Financial Services Authority (FSA UK) Monetary Authority of Singapore (MAS) Financial Services Agency of Japan (FSA Japan) Securities and Exchange Commission (SEC) Australian Securities and Investments Commission (ASIC) Financial Services Commission (FSC) Commission de Surveillance du Secteur Financier (CSSF) Federal Financial Supervisory Authority (BaFin) Canadian Securities Administrators (CSA) Securities Commission Malaysia (SC)

Signing Time 10 April 2007 26 October 2007 22 January 2008 22 February 2008 24 March 2008 10 June 2008 13 June 2008 23 September 2008 7 January 2009 23 April 2010 (Announcement) 24 June 2010

1. ASIC media release 08-126 “ASIC welcomes agreement as real win for the market”, 16 June 2008.

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Market Snapshot – China.
November 2010

Data Alert

19 January 2010

So far Hong Kong has been the biggest beneficiary as most QDIIs are interested in the Hong Kong stock market and have invested in Hong Kong-listed Chinese mainland companies.

Dual Custody System
The QDII regime requires the appointment of an onshore custodian and an offshore custodian to hold the assets intended for overseas investments. The onshore custodian (which must be an onshore commercial bank) is responsible for managing the onshore custodian accounts and supervising the investment activities of a QDII. The offshore custodian (which is appointed by the onshore custodian) is responsible for the opening and management of the offshore securities and settlement accounts with any relevant offshore securities registration and clearing organisation.

Approved QDIIs and Investment Quotas
As of the end of September 2010, China had 87 QDIIs with a total of US$66.9 billion in QDII quotas, including 25 commercial banks, 34 funds management firms, 25 insurance companies and three trust companies.

Breakdown of QDIIs by Institution Type
Trust Companies 3%

Commercial Banks 29% Insurance Companies 29%

Securities Firms 39%

Breakdown of QDIIs by Value of Approved Investment Quota
Trust Companies 1% Commercial Banks 12%

Insurance Companies 26%

Securities Firms 61%

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Market Snapshot – China.
November 2010

Data Alert
List of Approved QDIIs and Investment Quotas (As of 30 September 2010)
Company Name 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Bank of China Ltd Industrial and Commercial Bank of China Ltd The Bank of East Asia (China) Bank of Communications Ltd China Construction Bank Ltd HSBC Bank (China) Co Ltd China Merchants Bank Ltd China CITIC Bank Hang Seng Bank (China) Ltd Citibank (China) Co Ltd Industrial Bank Co Ltd Standard Chartered Bank (China) Ltd China Minsheng Banking Corporation Ltd China Everbright Bank Bank of Beijing Bank of China (Hong Kong) Limited mainland branches Credit Suisse Shanghai Branch Agricultural Bank of China Nanyang Commercial Bank (China) Ltd Deutsche Bank (China) Co Ltd Shanghai Pudong Development Bank Bank of Shanghai DBS Bank (China) Ltd Bank Paribas (China) Ltd Société Générale (China) Ltd Total quota approved for banks Date of quota approval 10.07.2006 11.07.2006 20.07.2006 27.07.2006 27.07.2006 07.08.2006 05.09.2006 18.09.2006 27.09.2006 27.09.2006 18.10.2006 24.10.2006 08.11.2006 23.11.2006 11.12.2006 11.01.2007 30.01.2007 09.02.2007 29.04.2007 17.08.2007 31.08.2007 24.01.2008 28.07.2010 28.07.2010 01.09.2010

19 January 2010

Value of approved quota (US$ million) 1000 1500 100 500 700 700 500 200 30 500 500 700 100 100 50 30 30 600 30 30 30 30 100 100 100 8,260

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Market Snapshot – China.
November 2010

Data Alert
List of Approved QDIIs and Investment Quotas (As of 30 September 2010)
Company Name 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 HuaAn Fund Management Co Ltd China Southern Fund China Asset Management Co Ltd Harvest Fund Management Co Ltd China International Fund Management Co Ltd ICBC Credit Suisse Asset Management Co Ltd Fortune SGAM Fund Management Co Ltd China International Capital Corporation Ltd HFT Investment Management Co Ltd Yinhua Fund Management Co Ltd China Merchants Securities Co Ltd Bank of Communications Schroder Fund Management Co Ltd E Fund Management Co Ltd China Merchants Fund Management Co Ltd Bosera Asset Management Co Ltd China Universal Asset Management Co Ltd GF Fund Management Co Ltd Penghua Fund Management Co Ltd Changsheng Fund Management Co Ltd Guotai Asset Management Co Ltd UBS SDIC CCB Principal Asset Management Co Ltd CITIC-Prudential Fund Management Lion Fund Management Co Ltd Everbright Pramerica Fund Management Co Ltd Fullgoal Fund Management Co Ltd Dacheng Fund Management Co Ltd Bank of China Investment Management Co Ltd (BOCIM) MANULIFE TEDA Fund Management Co Ltd Huatai Securities Ltd Guotai Junan Securities Co Ltd (GTJA) Chang Xin Asset Management Corporation Ltd Huatai-PineBridge Fund Management Co Ltd Everbright Securities Co Ltd Total quota approved for securities firms Date of quota approval 05.09.2006 04.09.2007 10.09.2007 26.09.2007 12.10.2007 05.12.2007 28.12.2007 16.11.2007 11.03.2008 03.04.2008 04.05.2008 22.05.2008 19.10.2009 19.10.2009 06.11.2009 09.11.2009 08.12.2009 08.12.2009 11.12.2009 30.12.2009 30.12.2009 30.12.2009 12.03.2010 12.03.2010 12.03.2010 12.03.2010 12.03.2010 20.04.2010 20.04.2010 14.04.2010 31.05.2010 23.07.2010 28.07.2010 28.07.2010

19 January 2010

Value of approved quota (US$ million) 500 5000 5000 5000 5000 1000 1000 1000 1000 1000 200 1000 1000 500 1000 1000 1000 800 700 700 700 700 500 500 500 800 500 700 500 200 200 500 500 200 40,400

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Market Snapshot – China.
November 2010

Data Alert
List of Approved QDIIs and Investment Quotas (As of 30 September 2010)
Company Name 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 Ping An Insurance (Group) Company of China Ltd China Life Insurance (Group) Company PICC Property and Casualty Co Ltd China Life Insurance Co Ltd Taikang Life Insurance Ltd Generali China Life Insurance Co Ltd The People’s Insurance Company (Group) of China Ltd Sino Life Insurance Co Ltd China Reinsurance (Group) Corporation China Pacific Insurance (Group) Co Ltd (CPIC) China Pacific Life Insurance Co Ltd PICC Health Insurance Co Ltd PICC Life Insurance Co Ltd Anbang Insurance Taiping Life Insurance Co Ltd Sinosafe General Insurance Co Ltd Huatai Insurance Company of China Huatai Asset Management Company Chartis Insurance Company China Ltd Bohai Property Insurance Co Ltd AXA-Minmetals Assurance Co Ltd Bubon Insurance Taiping General Insurance Co Ltd The Ming An Insurance Co (China) Ltd China Property and Casualty Reinsurance Co Ltd Total quota approved for insurance companies 85 86 87 China Credit Trust Co Ltd Shanghai International Trust Co Ltd Zhonghai Trust Co Ltd Total quota approved for trust companies TOTAL 08.12.2009 08.12.2009 30.12.2009 Date of quota approval 14.12.2004 14.12.2006 14.12.2006 10.04.2007 22.06.2007 22.06.2007 13.08.2007 16.08.2007 18.10.2007 17.09.2007 17.09.2007 24.09.2007 26.09.2007 10.10.2007 31.10.2007 15.11.2007 15.11.2007 23.04.2007 24.12.2007 18.12.2007 28.12.2007 23.01.2008 30.12.2009 14.04.2010 31.05.2010

19 January 2010

Value of approved quota (US$ million) 8890 1500 238 2750 1385 15 15 9 350 537 400 15 14 160 570 120 130 130 82 5 8 25 79 25 192 17,644 200 200 200 600 66,904

Sources: SAFE, Austrade

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Market Snapshot – China.
November 2010

Data Alert
Key QDII Regulators
• China Securities Regulatory Commission (CSRC) • China Banking Regulatory Commission (CBRC) • China Insurance Regulatory Commission (CIRC) • State Administration of Foreign Exchange (SAFE) www.csrc.gov.cn www.cbrc.gov.cn www.circ.gov.cn www.safe.gov.cn

19 January 2010

Key QDII Regulations
• Circular No. 5 issued by PBoC on 13 April 2006. • Trial Measures for the Administration of Overseas Securities Investment by Qualified Domestic Institutional Investors (CSRC Decree No. 46), issued by CSRC on 18 June 2007, effective on 5 July 2007. • Notice on Relevant Issues Concerning the Implementation of Trial Measures for the Administration of Overseas Securities Investment by Qualified Domestic Institutional Investors, issued by CSRC on 18 June 2007, effective on 5 July 2007. • Notice on the Adjustments to the Offshore Investment Scope of Overseas Wealth Management Business of Commercial Banks on behalf of their Clients, issued by the CBRC General Office (2007) No.114 on 10 May 2007. • Notice on Relevant Issues Concerning Foreign Exchange Administration of Overseas Securities Investment by Funds Management Companies and Securities Companies, promulgated by SAFE on 29 September 2009. • Provisional Measures on the Administration of Overseas Investment by Trust Companies on behalf of Clients issued by CBRC and SAFE on 12 March 2007. • Provisional Measures on the Administration of Overseas Investment of Insurance Funds, issued by PBoC, SAFE and CIRC on 28 June 2007.

Want to know more?
The Australian Trade Commission – Austrade – is the Australian Government’s trade and investment development agency. Austrade provides a range of services to investors, including information about local market conditions and regulations. Austrade operates in more than 100 locations in over 55 countries. To find out more visit www.austrade.gov.au/invest or email [email protected]

Disclaimer
Any person relying on information contained in this publication does so entirely at their own discretion; the Australian Government strongly recommends independent professional advice is obtained prior to acting on this information. The Australian Government disclaims all liability whether in law or in equity for any loss, damage, opportunity foregone or cost incurred by any person and howsoever caused by the use, reliance or adoption of the information or material contained in this presentation. Enquiries should be directed to [email protected]

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