TO THE POINT: The Chinese stock market turned sluggish in October and November, causing many individual investors to lose out. The QDII scheme diverted some of the investments out of the domestic stock market, while fund companies also saw their fund values decrease significantly. The fiscal watchdog barked at fund management companies to control their risks and forbade them from participating in speculative operations. The good news for foreign investors is that they can invest in futures companies, but at the same time they are being discouraged from investing in residential building projects. Altogether 662 Chinese and foreign financial institutions were punished for their role in money-laundering activities.
By LIU YUNYUN
QDII Quota Grows
The total investments of China's qualified domestic institutional investors (QDIIs) reached $42.17 billion by the end of the third quarter, according to the State Administration of Foreign Exchange (SAFE).
Li Dongrong, deputy head of SAFE, stated that a total investment of $10.86 billion has already been invested in overseas markets by the end of September.
The year-old QDII scheme gives mainland investors the ability to entrust mainland commercial banks with the task of investing in overseas financial products. The system also gives insurance institutions the ability to invest some of their assets in overseas fixed-income products and monetary market products.
To date, most of the QDII investments have been invested in the Hong Kong market, largely in Hong Kong-listed mainland companies, pushing Hong Kong's Hang Seng Index to record highs.
Li said the administration would continue to promote the QDII program steadily, and vowed to strengthen supervision.
So far, 21 commercial banks, including Chinese and foreign banks such as HSBC China and the Agriculture Bank of China have been allowed a combined quota of $16.1 billion.
Another five fund management firms, such as China Asset Management Corp., enjoy a combined investment quota of $19.5 billion, while 14 insurance companies, including Ping An of China and China Life Insurance, hold the remaining $6.57 billion.
Fund Management 101
The China Securities Regulatory Commission (CSRC) issued a notice (Circular 44) on November 4 requiring fund management companies to avoid blind expansion and refrain from misleading the public.
Fund companies engaged in speculative operations were criticized by the CSRC, which ordered them to strengthen risk control and educate individual investors about the risks they might face when they buy a fund.
Tianxiang Investment Consulting reported that about 80 percent of open-ended funds suffered losses in October and only 54 open-ended funds gained value. Tianxiang's report showed 231 open-ended funds dropped 1.51 percent in value, and most people who purchased funds in October suffered losses.
The CSRC ordered fund firms not to expand the scale of their funds six months after the day they issued statements or started promotions for the issuance of new products. The fund management companies are also required to educate investors about risks of buying funds and profitability exaggeration is strictly prohibited. No new funds have been launched since September 21.
Latest figures from the CSRC showed that the aggregate equity of China's funds swelled nearly 10 percent in more than one month to 3.312 trillion yuan by the end of October, almost quadrupling the figure in the beginning of the year.
The third-quarter survey by the People's Bank of China showed funds comprised up to 25.4 percent of urban households' financial assets, up by 5.4 percentage points over the second quarter.
On observing the substantial drop in the stock market, individual investors tended to consider redemption of their funds. If large-scale redemption of funds happened, the mainland stock market would crash.
General Manager Sun Zhichen with the Principal Asset Management Co. Ltd. of the China Construction Bank said that the move was "a rational and natural decision" of the supervisors in effort to curb market risks.
Hanging Launderers Out to Dry
Altogether, 662 financial institutions, including 10 foreign banks, were punished for violating anti-money-laundering rules.
The central bank stated on its website that the investigation results were compiled after spot-checks on 3,378 institutions in 2006. Total money involved amounted to 387.13 billion yuan, and was mostly laundered in Shangdong, Guangdong, Yunnan, Xinjiang and Shanghai.
Violators were fined a total of 40.52 million yuan, with the number of institutions punished rising by 10 percent year on year. However the punishment wasn't as severe as it once was: Since 2005, the fine has been lowered by 28 percent.