China Commits to Freedom in Investment

Last week, the Chinese State Council announced that a Qualified Domestic Individual Investor (QDII 2; 合格境內個人投資者) program would be implemented by the end of 2014, in an ongoing effort to increase the flow of capital across international borders. As the renminbi is not a freely floated or traded currency, a Qualified Domestic Institutional Investor (QDII; 合格境內機構投資者) scheme was started in 2006 to give Chinese investors access to international financial markets through approved institutions, such as asset management firms. In January 2013, the central bank announced that it was making preparations to widen the scope of the QDII scheme.

No specific details have been released, but analysts believe QDII 2 will be a refined version of a short-lived 2007 pilot scheme, commonly known as the ‘Hong Kong through train’ (港股直通車). The scheme allowed Chinese investors to directly trade Hong Kong stocks and led to the all-time high on the Hang Seng Index of nearly 32,000 points. Currently, mainlanders can only trade Hong Kong stock through pre-packaged funds under the quotas offered by the QDII scheme. The new QDII 2 program is expected to create positive economic benefits for Hong Kong, as many mainland investors are keen to invest in the small to medium enterprises (SMEs) currently listed on the Hong Kong Stock Exchange. It is also anticipated that QDII 2 will attract other SMEs to list in Hong Kong in order to gain access to the vast amounts of capital from mainland investors.