Chinese Investment Scheme For Hong Kong Imminent

by Mary Swire, Tax-News.com, Hong Kong

15 April 2002

Speaking yesterday on the sidelines of the Boao Forum for Asia business and government leaders in Hainan, Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong said that the Qualified Domestic Institutional Investor scheme must be launched urgently in order to balance money flows between the SAR and the mainland.

It was quite easy for Hong Kong money to flow to China, but there were more obstacles in reverse, Mr Yam said. In terms of foreign investments, the figures in 2000 showed that more than US$40 billion from Hong Kong flowed into China, but the flowof funds from the mainland to Hong Kong amounted to little more than US$10 billion.

The QDII scheme, which would allow mainland funds to buy Hong Kong stocks, would narrow the gap, said Mr Yam. Under the scheme, a mainland individual or corporate investor would put money into a fund, likely to be closed with a fixed term, which would be managed by an institution approved by the People's Bank of China.

It has been reported that the initial size of the fund would be only US$3 billion, probably not large enough to boost Hong Kong's stock market capitalisation, which stood at US$494 billion at the end of last month, but Mr Yam said that the size of the initial scheme was not the most important aspect. "The most important thing is that the scheme will establish a channel to improve money flow from the mainland to Hong Kong," Mr Yam said on Hong Kong's Cable Television.

The scheme was initially proposed by the Hong Kong Government last year, aimed at attracting mainland capital to help stimulate the Hong Kong stock market. Last month, Dai Xianglong, governor of the People's Bank of China, said Beijing would consider the proposal, which was seen as part of efforts to mobilise the country's billions in individual savings and support the SAR. But Bank of China Hong Kong chief executive Liu Jinbao said on the sidelines of the Asia conference that he did not expect the scheme to be launched in the first half of this year.

Mr Liu said on Cable Television there were technical issues to be resolved. "These things are very complicated . . . the procedures are still being thought out," he said. Last week, the China Daily newspaper said the system might be implemented as early as July and "no later than August".

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