Download LCQ16: Qualified Domestic Institutional Investors (QDII) scheme (26

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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
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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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