Stock Exchange Executive Says Early Launch of QDII Unlikely

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Last updated at: (Beijing Time) Friday, April 19, 2002

Stock Exchange Executive Says Early Launch of QDII Unlikely

Reform is poised to be the keyword for China's capital market following the country's World Trade Organization (WTO) accession. Officials insisted that the QDII plan aims to help mainland investors gain international market experience rather than rescue a bearish Hong Kong stock market, as many believe, and the scheme should be tried on a small scale initially.

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Reform is poised to be the keyword for China's capital market following the country's World Trade Organization (WTO) accession in December, which analysts view as a watershed in the industry's 10-year history.

Recent major market reforms, as well as those in the pipeline, again came into the spotlight Thursday during a session on the capital market at the ongoing China Business Summit 2002.

Worried that a recent deregulatory move involving brokerage commissions may deliver a further blow to the country's beleaguered securities firms, Fang Xinghai, assistant general manager of the Shanghai Stock Exchange, called for a loosening of securities-backed bank loans, which he said would improve profitability for both banks and brokerage houses.

Separation of different sectors of business necessary

"Under the business separation of the financial industry, I would like to recommend that individuals be allowed to borrow from banks with stocks as collateral," Fang said.

Chinese banks, insurance firms and brokerages are banned from entering each other's business territories, a practice that has aroused growing concern among economists and financiers.

Provided with China's 1.6 trillion yuan (US$193 billion) worth of tradable shares, securities-backed, personal collateralized loans would create a profitable and safe business for Chinese banks eager to make use of their colossal 8 trillion yuan (US$963 billion) of personal savings.

Such loans are currently forbidden by the central bank but have proved to be safe and more lucrative than regular loans by some renegade banks that have been secretly providing those loans, Fang said.

More urgently, the new product would bring new hope to the country's struggling brokerage firms by underpinning market confidence and injecting liquidity into the market, he said.

Regulators announced earlier this month they would allow brokerages, some of which are already on the verge of bankruptcy due to a chronic market rout, to set commission fees on their own, a move many worry could trigger an industry-crippling cutting of commissions war.

Asset management

In the area of asset management, Fu Teh-hsiu, head of the Greater China Office, UBS Asset Management, said the participation of foreign capital would have a positive impact on market order and enlarge overall market magnitude rather than grab shares off the existing market from local players.

Foreign fund managers would bring in expertise, better client services and corporate governance as well as new products through their local partners, Fu said. Foreign fund management firms are only allowed to hold a maximum 33 per cent stake in joint ventures they set up, and the ceiling will grow to 49 per cent in three years.

QDII plan helpful to gain world market experience

Elsewhere, Fang said he had not officially heard about the reported early launch of a qualified domestic institutional investor's scheme, or QDII. Earlier media reports said the government would allow mainlanders to trade stocks in Hong Kong through the QDII framework starting in either July or August.

He insisted that the QDII plan aims to help mainland investors gain international market experience rather than rescue a bearish Hong Kong stock market, as many believe, and the scheme should be tried on a small scale initially.

Fang also defended the current business separation between banking, insurance and securities.

He argued China's financial institutions do not yet have a mature internal control mechanism to contain financial risks.

Source: China Daily

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