QDIIs & QFIIs

China devised two schemes-qualified foreign institutional investor (QFII) and qualified domestic institutional investor (QDII)-to honor its commitments to the WTO by further opening its financial markets.

The QDII scheme, adopted in May, enables domestic insurers, banks and fund management companies to invest in overseas financial markets. It was devised to divert excess liquidity in the domestic market and encourage people to invest in mature markets.

Currently, a total of 16 Chinese and foreign banks, 20 insurance companies and eight mutual fund management companies have been approved by the regulatory departments to invest in overseas markets.

However, the QDII products managed by those companies did not report satisfactory performances due to the volatile international financial markets deeply affected by the U.S. subprime mortgage crisis.

Meanwhile, the QFII scheme, adopted in 2002, made it possible for foreign institutional investors to invest in the mainland financial market. The quota was raised from $10 billion to $30 billion by the end of this year.

To date, a total of 49 foreign institutions have acquired QFII quotas of $9.95 billion, and the value of their portfolio has increased to 200 billion yuan ($26.5 billion).

The two schemes are beneficial to both domestic and overseas markets. When the cross-boarder capital scale is expanded further, the openness of Chinese capital accounts under the international balance of payments will be increased.