The first six cities to pilot QDII2 are Shanghai, Tianjin, Chongqing, Wuhan, Shenzhen and Wenzhou. The central bank is considering lifting an annual limit of 50, 000 dollars on foreign exchange purchases for eligible individual investors, no longer capping them.
QDII2 pilot Asymptotic Capital account Open and next City
Following the Shanghai-Hong Kong Stock Connect, the Chinese government has further liberalised its capital markets by introducing the qualified domestic individual Investor Program (QDII2), which will allow individuals to invest directly in overseas financial assets, including overseas properties.
The initiatives of the qualified domestic individual Investor Program (QDII2) are based on the qualified domestic Institutional Investor Program (QDII), which was introduced in 2007. This is an upgrade from the previous QDII (QDII only allows individual investors to invest overseas within a certain limit and scope).
The yuan has been tightly controlled, with only foreign currency coupons restricted to overseas tourists and, although freely convertible for trading purposes, cross-border investment is still severely curbed, but this will also be changed through a series of procedures. With the launch of the qualified domestic individual Investor Program (QDII2), individual foreign exchange management under the capital account will exceed the exchange limit of $50, 000 per person per year that has been in place since 2007, and the capital account will be opened to the next city.
QDII2 request condition
18 years of age or above
Live in pilot cities (Shanghai, Tianjin, Chongqing, Wuhan, Shenzhen and Wenzhou)
The average daily balance of personal financial net assets in the last three months is not less than 1 million yuan
Through overseas investment and risk capability testing
No significant adverse record and no judicial decision on outstanding debt
QDII2 investable area
Overseas financial investments, including stocks, bonds, funds, insurance, foreign exchange and derivatives;
Overseas industrial investment, including green space investment, merger and acquisition investment, joint investment and so on, shall be filed or approved in accordance with the provisions of the relevant competent departments;
Overseas real estate investment, including the purchase of housing, and so on, must be examined and certified materials to deal with.
QDII2 process
In the future in the pilot six cities, eligible individuals as long as holding valid resident identity cards or residence permits, financial net assets of not less than 1 million yuan of approved materials;
After signing an application for opening an account, a letter of commitment of legality of overseas investment funds and a letter of commitment of self-financing for investment risks and other materials approved by a bank, a foreign direct investment account may be opened.
(including one RMB special account and one foreign exchange special account for the collection and payment of overseas investment funds and for the settlement and sale of foreign exchange.)
Domestic investors can buy overseas insurance, stocks, bonds and real estate directly, rather than choosing investors from a handful of foreign mutual funds approved by the government.
According to people familiar with the preparations for the relevant pilot projects, the launch of QDII2 has three implications:
The first is to meet the needs of the global asset allocation of domestic residents;
The second is to relieve the pressure of the growth of foreign exchange reserves on the management efficiency;
Third, speeding up the internationalization of RMB;
Visible, the country this measure is to encourage the domestic resident asset allocation globalization, disperses the exchange rate risk which exists in the single currency investment. Domestic investors can relax investment restrictions, direct purchase of overseas insurance, stocks, bonds and real estate, investment is no longer subject to quota restrictions.
What is QDII?
QDII (Qualified Domestic Institutional Investors) QDII is a mechanism that allows local investors to invest overseas in countries where capital accounts are not fully open, through which investors can buy and sell in order to allow the state to regulate the flow and size of funds.
Through the establishment of a closed-end fund (that is, after the maturity of the fund, the principal and return can not be traded for a one-time period), QDII can set a period and investment cap for investors to subscribe to, and the fund manager is responsible for the investment. The above forms allow safe to regulate the flow of funds to ensure the return of funds to the country.
QDII2 will release 41 trillion Investment
The opening up of overseas investment is on the way to the next city. In the future, individual cross-border investment channels are expected to open, and as soon as the QDII2 is launched, investors will have a wider range of options, both autonomous and institutional.
Six cities pilot
Xinhua News said, following the QDII, Shanghai-Hong Kong Stock Connect and RQDII, QDII2 is also on the rise, the international financial industry is very optimistic about China`s "global allocation of assets" to bring opportunities.
The first six cities to pilot QDII2 are Shanghai, Tianjin, Chongqing, Wuhan, Shenzhen and Wenzhou, where individuals over the age of 18 live in the pilot cities. The average daily balance of personal financial net assets in the last three months is not less than 1 million yuan. If you pass the overseas investment and risk ability test, you can apply for QDII2. if there is no significant adverse record and no outstanding debts have been decided by a judicial decision.
That means, unlike previous curve investments, such as public offerings or private equity, domestic investors are expected to make direct investments in overseas markets after the release of QDII2.
From a demand point of view, there are two main purposes for investors to allocate their assets overseas:
The first is to diversify investment and reduce risk on a global scale;
The second is to pursue stable high returns on a global scale;
In fact, as far as the launch of QDII2 was concerned, as early as the Asian Financial Forum in 2013, Guo Shuqing, then chairman of the CSRC, proposed the need to improve the investment environment and promote the QDII2. in due course.
In April 18, regulators` frequent pronouncements heralded QDII2`s "coming out of nowhere." In March, central bank governor Zhou Xiaochuan revealed in public that the people`s Bank of China was considering relaxing restrictions on individual overseas investment by Chinese residents and other rules. The day before, the head of the State Administration of Foreign Exchange, Yi Gang, also said that China would steadily promote capital account convertibility, the QDII2 is studying, in the near future could consider more open.
After that, the central bank said in the RMB internationalization report that it would open channels for individual cross-border investment and consider launching a pilot overseas investment by qualified domestic individual investors (QDII2). Shortly after that, Pan Gongsheng, deputy governor of the central bank, also said: At present, the central bank, together with the relevant departments, is studying the introduction of QDII2. in areas where conditions are ripe.
As far as the industry is concerned, there are signs that the implementation of QDII2 is on the agenda. "after more than two years of research and preparation, the basic framework for the overall implementation of QDII2 should be basically completed and launched in due course." Kuang Chen said.
This is in line with current investor demand-a growing interest in overseas asset allocation.
Overseas "risk aversion"
Since the central bank announced on Aug. 11 to improve the renminbi-dollar mid-rate quotation mechanism, discussions about the "exchange rate" have intensified, coupled with uncertainty in the domestic stock market, and investors` thinking about investment opportunities in overseas markets has increased.
Domestic middle-class households` willingness to invest in foreign assets has risen sharply with the recent volatility in the domestic stock market and renminbi exchange rate, a survey said.
What does not match the exuberant demand for overseas asset allocation is the relative shortage of available channels and supplies. Generally, in order to reduce the impact of exchange rate fluctuations on investment returns, individuals invest in overseas currencies, overseas assets, and so on. However, since the current regulatory framework gives individuals limited access to overseas investment, most investors have to invest through existing domestic financial products. The most common and direct way is QDII..
According to Noah`s research, as of August 13, 2015, 31 fund companies in China`s public offering fund market have issued QDII funds, with a total of 96 funds (without statistics), with a total size of 83.127 billion yuan.
The attractiveness of the QDII will continue to grow against expectations of a devaluation of the renminbi, as a result of the exchange rate gains.
According to Noah`s study, the net value growth of all QDII funds linked to U.S. stocks and Hong Kong stocks after the devaluation of the yuan showed that the performance of such QDII on August 11 and 12 was better than the underlying index because of exchange gains.
In addition, because the current situation of capital outflows is not optimistic, how to make capital flows become compliant, controllable, is also an urgent problem to be solved. "there are times when clients want to put money out," says one money trader. "there`s always a way to fix it," says one money trader.
Even with strict regulatory controls, informal capital flows, which are at great risk, remain loopholes. The industry believes that QDII2 is one of the ways to resolve the problem, so that qualified domestic investors operate in a transparent, orderly environment, not only regulatory aspects can be followed, investors` own interests can be better protected.
Competition on the same stage
Although specific timetables for the QDII2 are not yet known, according to China International Capital Corporation economist Liang Hong, if the project were to be rolled out nationwide, it would theoretically unleash about 41 trillion yuan of domestic wealth that could be used for overseas investment.
In front of the huge market cake, foreign financial institutions are eager to try, looking forward to seizing the opening-up opportunity of China`s QDII2. Not long ago, the head of Denmark`s Shengbao Bank Group revealed that they were following the policy reform process in the hope that applications would be approved in the future to service Chinese investors in global market investments and cross-border transactions.
Because of the need to compete with foreign financial institutions on the same stage, how to achieve rapid transformation when the capital is fully open up, to improve their asset management and management capabilities, and to grasp the local high net worth customer resources, Has become our country financial institution must face the problem.
"China`s commercial banks are moving from a traditional spread model to a diversified asset management plan, with their asset management capabilities, both in terms of investment targets and market size," he said. Still, in terms of investment experience and investment structure, the financial institutions of developed European and American countries are far from each other. " Kuang Chen said.
Fortunately, we can rely on a "sound" open policy in the short term. According to the speculation of general wealth, the upcoming QDII2 will not only carry out partial trials in individual cities, but will also control the total amount of exchange in general. In the initial stage, the QDII2 will have less impact on domestic financial institutions. Domestic financial institutions can also seize investment opportunities.
"while overseas developed markets are perfect capital markets, they are unfamiliar to domestic investors, who are more dependent on domestic financial institutions for overseas asset allocation," Mr Kuang said.
At the same time, due to geographical, linguistic, tax, legal and other impacts, investors in the mainland are more likely to test water in Hong Kong`s capital market first. In this case, domestic financial institutions can still take advantage of their local advantages. "
