China widens access to overseas stocks, handing out nearly US$7b in QDII quotas

Expansion aims to ease tight supply of cross-border investment products following crackdown on non-compliant offshore investments

Beijing’s recent granting of new outbound investment allocations will help ease tight supply of cross-border investment products, including those invested in US securities, as Chinese investors look globally for diversification, according to analysts.

The foreign-exchange regulator granted US$6.84 billion of qualified domestic institutional investor (QDII) quotas to mutual-fund firms, insurers and banks’ wealth-management units in the latest round of approvals by the end of August, according to data released by the State Administration of Foreign Exchange.

Eighteen money managers, including China Asset Management and GF Fund Management, received allocations of US$100 million each, while more than 20 banks’ wealth-management arms were granted quotas for the first time.

The move shows that policymakers are making an effort to open up legitimate channels amid increasing demand for diversification after they tightened scrutiny of non-compliant offshore investments.

“The expansion will help to ease tight supply of cross-border investment products and meet real and legal household demand for overseas asset allocations,” said Wu Jing, an analyst at China Galaxy Securities. “The release of quotas will add to product supply and rein in unreasonable premiums.”

The expansion fulfils the foreign-exchange regulator’s pledge in July to increase allocations of overseas investments to meet rising demand from Chinese investors, who are struggling with a prolonged decline in home prices and falling returns from fixed-income assets.

Demand for overseas financial products offered through the official channel increased after Beijing cracked down on illegal offshore stock accounts opened by Chinese investors.