New Chinese QDII Rules Good For Hong Kong

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

27 April 2007

The proposed expansion in the investment scope for Chinese banks engaging in wealth management for domestic investors will make it easier for China to use Hong Kong's financial system to improve its financial intermediation, according to Monetary Authority Chief Executive Joseph Yam.

In his latest Viewpoint column published on Thursday, Yam said that after a year's experience in establishing, operating and refining the Qualified Domestic Institutional Investor schemes, it is now time to expand their scale and variety.

Yam welcomed the comment from the China Banking Regulatory Commission Chairman Liu Mingkang earlier this month that the Mainland is considering an expansion in the QDII schemes.

"We certainly hope that the expansion will bring more business to financial intermediaries and activity to the financial markets of Hong Kong, strengthening its status as an international financial centre," Yam stated.

Given the persistent and increasing current-account surplus, continued strong capital inflow, rapid accumulation of foreign reserves and increasing difficulty of monetary management, he suggested that the best way for China to address this scenario is to liberalise the capital account, rather than allow a large appreciation in the exchange rate.

In accordance with the spirit of "gradualism", "controllability" and "pro-activity" in reform, capital-account liberalisation should be effected through encouraging outflow under a framework of effective regulation, he said.

Yam added that the authority stands ready to co-operate with the Mainland authorities in designing the channels to facilitate capital outflow proactively and gradually, while maintaining a high degree of controllability.

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