BIZCHINA / Review & Analysis
QDII could help save China's bubble market
By Lau Nai-keung (China Daily)
Updated: 2007-05-21 15:43
Since the QDII (qualified domestic institutional investor) plan launching
last July, it has not been very popular in its test market, Hong Kong.
The QDII plan will allow Chinese citizens to invest in overseas equities
markets with designated foreign currencies. QDII works through qualified
institutional investors such as fund management companies.
A quota of $12.6 billion has been allotted for the operation, but only
$300 million, or 2.4 percent, has been utilized. Obviously, when the
domestic stock market is like a crazy bull and nobody cares about risks,
who will bother with the seemingly low yielding overseas market.
But things may be about to change. The number of players in China's stock
market is now rapidly approaching 100 million, and the banks are still
flooded with liquidity. The bubble is about to burst, and decision-makers
have to do something fast.
QDII is an obvious candidate on the short list of possible measures. If
successful, it has the advantage of killing three birds at the same time:
curbing the surplus of savings and foreign exchange and cooling the
yuan-denominated A-share stock market.
Another advantage, the plan is already in place. The machinery is now
moving smoothly along after a year's experience in establishing,
operating and refining the system.
This will be the fastest measure to be implemented since all it takes is
some relaxation fine tuning. It is also safer because it is highly
regulated and orderly. Any possible troubles will take place in Hong
Kong, where there is a firewall separating the mainland.
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