When the People’s Bank of China announced a framework for its qualified domestic institutional investor (QDII) programme in April, setting a roadmap for the investment of Chinese funds overseas, the initial reaction was one of heavily tempered enthusiasm.
Great, said analysts, but let’s be realistic: this process is going to be heavy on procedures, restrictive, and costly. Nothing’s going to change straightaway – not the investment habits of ordinary Chinese, not the outward views of Chinese banks and asset managers, and certainly not China’s external balance of payments.
For the past few months, that glass-is-half-empty view has been appropriate. A couple of nominally QDII funds have come from major banks, such as ICBC and Bank of China, but they have been nothing to set the pulse racing: the ICBC product invests predominantly in six-month money-market notes. And they have no choice. Banks can only invest in fixed-interest product, they have the additional financial burden of having to guarantee forex losses for their clients, and they do so in the full knowledge that the renminbi is likely to appreciate against other currencies, wiping out whatever meagre gains can be recouped from those markets in the first place.