China Raises Outbound Investment Quota by Another $10.3 Billion

China’s foreign exchange regulator raised the total quota under an outbound investment program by another $10.3 billion on Tuesday, allowing more domestic money to be channeled into offshore financial markets amid a surging yuan.

The State Administration of Foreign Exchange (SAFE) approved fresh quotas for 17 institutions under the Qualified Domestic Institutional Investor (QDII) program, bringing the total quota to $147.3 billion, according to an update Wednesday. The latest move was the seventh and largest increase since September, when China resumed new quota issuance after a 16-month pause. Since then, SAFE has issued a combined $43.3 billion in new quotas in seven tranches.

The QDII program covers four types of financial institutions: securities-industry firms including brokerages and fund managers, insurers and insurance asset management companies, banks and banking wealth management companies, as well as trust companies, which have been respectively granted quotas of $75.8 billion, $37.7 billion, $24.9 billion, and $9 billion so far.

Securities-industry firms, which take the largest share of the total quota, saw the greatest quota increase this round compared to other kinds of institutions, which amounted to $7 billion. Trust companies have not been awarded new quotas this year.

Launched in 2006, the QDII program provides a major channel to domestic investors to invest in offshore assets through financial institutions. Its expansion was brought to a standstill in 2015 as regulators tried to rein in capital flight, and revived by SAFE in 2018. From May 2019 to August 2020, the issuance of new quotas was suspended again, which economists said was due to concerns over capital flight amid pressure from a depreciating yuan.

In recent months, Beijing has been signaling an easing of its capital controls for domestic investors, who are increasingly interested in diversifying their assets by investing abroad amid a surging yuan. SAFE officials have said that the authority will routinize the issuance of new QDII quotas.

Cross-border capital flows are a key factor affecting the exchange rate of the yuan. Allowing more outbound investment, which means more money flowing out of China, can be used as a policy tool to ease appreciation pressure on the yuan. Over the past few months, China has seen massive inflows of overseas capital, which helped drive up the yuan, as confidence in its economy has improved and the government has further opened up its capital markets.

Amid the continued appreciation of the yuan since June 2020, China’s foreign exchange policies have focused on several aspects, including expanding capital outflows, Guan Tao, chief global economist at BOC International (China) Co. Ltd. (601696.SH), wrote in a February report (link in Chinese).

Contact editor Lin Jinbing (jinbinglin@caixin.com)

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