The State Council has given the National Council Social Security
Fund the go-ahead to invest in the overseas capital market, and an
offshore investment banking subsidiary of the Bank of
China may take the lead role in the fund's asset management
outside the mainland.
The State Council has given the National Council Social Security
Fund (NCSSF) the go-ahead to invest in the overseas capital market.
As a result, China's long-awaited qualified domestic institutional
investor (QDII) scheme should be introduced soon.
The NCSSF is the first domestic institution to get the green
light to invest in the overseas capital market.
Industry sources say the State Council recently approved the
proposal by the Ministry of Finance to let the social security fund
invest overseas, with Hong Kong as the preferred target market.
Bank of China International Holdings Ltd., the overseas
investment banking subsidiary of the Bank of China, may take the
lead role in the fund's offshore asset management, sources
revealed.
The social security fund controlled about 124 billion yuan
(US$15 billion) of assets at the end of 2002. It is estimated that
only about 5 billion yuan (US$603.8 million) will be allowed to be
initially invested in Hong Kong.
An official involved with the fund said the council has been
conducting a number of studies in the lead up to the move overseas,
but he was not able to say when all of the frameworks would be in
place.
Even with State Council approval, many preparations still have
to be made to implement the plan, including the drafting of
detailed rules and a decision on a fund manager and custodian.
The council is already investing in securities on the domestic
bourses through mainland fund managers.
It will take some time for the QDII investment to start
formally, as the authorities have yet to set the market threshold
and come up with parallel rules to allow such outbound capital
investment when the Renminbi is not fully convertible under the
capital account, said Tang Di, an analyst at CITIC Securities
Co.
When China approved the qualified foreign institutional investor
(QFII) system last year, allowing foreign investment into the
domestic A share and bond markets, it took eight months for UBS,
the first licensed QFII, to get through all of the paperwork and
make its first investment order.
Tang said an institution like the social security fund should
follow a prudent investment methodology to minimize risks.
The process of choosing the appropriate fund manager is one of
the most crucial issues. Though some domestic fund managers have
expressed interest, overseas institutions have their own
advantages, Tang said.
Other domestic institutions, including insurers, securities
houses and fund managers, are also looking forward to entering the
overseas capital market.
(China Daily March 5, 2004)