China Quotas for Outbound Investment Trials Hit $10 Billion

(Bloomberg) — China’s currency regulator more than doubled quotas for outbound investment in Shanghai and Shenzhen, allowing fund companies to invest a total of $10 billion in assets overseas.

The State Administration of Foreign Exchange boosted the Qualified Domestic Limited Partnership and Qualified Domestic Investment Enterprise trial programs in the two cities to $5 billion each, the currency regulator said late Tuesday. SAFE raised the quota from $2 billion for the QDLP program in Shanghai and $2.5 billion for QDIE in Shenzhen, according to a note from United Overseas Bank Ltd.

“In recent months, Chinese authorities have stepped up efforts to grow the two-way flow of both inbound and outbound investments in their on-going effort to further liberalize China’s financial markets and open up China’s capital account,” UOB said.

China’s leaders unveiled a series of steps earlier this month aimed at opening their financial system and more fully integrating into global capital markets. Foreign firms are watching to see whether People’s Bank of China Governor Yi Gang was serious in his pledge to move quickly to level the playing field with domestic financial companies.

QDII Program

The currency regulator is also set to allow bigger investments overseas under the Qualified Domestic Institutional Investors program, which was halted for three years.

The moves come after pressure on the yuan — and for potentially destabilizing capital outflows — diminished. The had its biggest gain in nine years in 2017 against the dollar, while the Bloomberg Dollar Spot Index is trading near its lowest level since early 2015. Foreign holdings of onshore Chinese bonds rose to a record this year, more evidence of the yuan’s appeal.

“This opens the door for some meaningful capital outflow, which should partly balance portfolio inflows into the mainland bond market,” said Samsara Wang, an emerging markets strategist at Credit Agricole (PA:) CIB. “The news is modestly renminbi negative as the amounts are greater than expected, the timing is faster.”

BNP Paribas (PA:) SA’s asset management arm is among those approved for the QDLP program. Several institutions, including JPMorgan (NYSE:) Asset Management, were reported to have been granted QDLP quotas last month.

(Adds fifth, sixth paragraphs on QDII, yuan.)

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