Press releases
LCQ16: Qualified Domestic Institutional Investors (QDII) scheme
Wednesday, January 26, 2005
Following is a question by the Hon Sin Chung-kai and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (January 26):
Question:
It has been reported that, in view of the recent mounting pressure to appreciate the Renminbi (RMB), the State Administration of Foreign Exchange has taken a series of measures to relax the restrictions on outflow of funds in order to relieve the pressure to appreciate the RMB. Furthermore, the implementation of Qualified Domestic Institutional Investors (QDII) scheme as well as the permission for Mainlanders to invest in Hong Kong will both facilitate inflow of funds from the Mainland to Hong Kong, and help the Hong Kong investment markets and the real estate sector to gradually recover, increasing job opportunities in Hong Kong and easing the pressure to appreciate the RMB. As the Hong Kong Special Administrative Region Government (HKSAR Government) said in June last year that the Central People's Government had approved the scheme in principle and were working out the relevant details, and that the HKSAR Government would liaise closely with the relevant Mainland authorities on this matter, will the Government inform this Council of:
(a) the progress of such liaison; and
(b) the specific measures to attract QDII to invest in Hong Kong?
Reply:
Madam President,
(a) Qualified Domestic Institutional Investors (QDII) scheme refers to the scheme that allows Mainland financial institutions with foreign exchange to invest in capital markets outside the Mainland such as Hong Kong under certain conditions. QDII is a policy matter to be determined by the Mainland authorities. The role of the Hong Kong Special Administrative Region Government is to provide the relevant Mainland authorities with information on Hong Kong markets, our regulatory framework and legal system, and to reflect to them the keen desire by our financial services sector to participate actively and constructively in the QDII scheme to facilitate the authorities' consideration of this issue and other related matters.
As I said in July last year, I believe that the relevant Mainland authorities will make announcement as appropriate if there is any significant development. In the meantime, the Administration, together with the financial regulators, will continue to liaise closely with the relevant Mainland authorities on issues of mutual concern, including QDII and other related issues.
Notwithstanding the above, we note that the Mainland authorities are taking steps to allow overseas portfolio investment. For example, the State Council in February 2004 gave approval to the National Social Security Fund to invest their foreign currency funds in overseas markets, and the relevant detailed arrangements are being formulated. In August 2004, the Temporary Measures on Overseas Use of Foreign Exchange Insurance Funds were promulgated, allowing qualified Mainland insurance companies to invest up to 80% of their remaining balance of foreign exchange insurance funds at the end of the previous year. Members may be aware of recent announcement that a Mainland insurance company was given the approval for overseas portfolio investment with a limit of US$1.75 billion. As more and more Mainland funds look for overseas investment opportunities, Hong Kong's financial market will no doubt benefit. We look forward to early implementation of schemes allowing more Mainland funds to make use of Hong Kong as the investment platform.
(b) Hong Kong is one of the freest economies in the world and a reputable international financial centre, which possesses superb financial infrastructure, modern facilities, regulatory system of international standards, well-developed financial markets, abundant supply of experts in financial services with international exposure, and extensive experience in economic co-operation with the Mainland. We believe that these competitive edges would help attract Mainland funds to invest in Hong Kong, and to utilise financial intermediary services provided here to facilitate their overseas investment. We will continue to enhance the efficiency of financial intermediation in Hong Kong and develop financial markets and financial infrastructure further to capture the opportunities arising from the new developments in the Mainland.
Separately, we have been in touch with the various Mainland authorities to explain to them the strengths of our markets. We also organised for the first time a Forum on Management of Insurance Funds in November 2004 to bring together industry practitioners from insurance companies in the Mainland and senior representatives from Hong Kong's asset management industry and insurance industry to enhance the Mainland insurance practitioners' understanding of the Hong Kong financial markets and the investment opportunities in Hong Kong. We will continue our efforts in this regard.
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