Shenzhen has granted four companies licenses related to the new Qualified Domestic Investment Enterprise (QDIE) program, providing another important channel for cross-border investment.

The mainland already had two channels for domestic investment institutions to enter the overseas market, under the Qualified Domestic Institutional Investor (QDII) and Qualified Domestic Limited Partner (QDLP) programs.

Guo Wanda, vice-president of the China Development Institute, a Shenzhen-based think tank, said: "The issuing of QDIE licenses is conducive for Hong Kong to attract more mainland capital into stock and fund investment."

China Southern Capital, a subsidiary of Shenzhen-based China Southern Asset Management, was the first to be granted a QDIE license in January.

Three other firms registered in the Qianhai Shenzhen-Hong Kong Modern Service Cooperation Zone also received their permits later the same month. These are China Merchants Wealth, a subsidiary of China Merchants Fund; Great Wall Fu-Hao Fund Management, a subsidiary of brokerage Great Wall Securities; and Shenzhen Qianhai CCT Asset Management under trust company China Credit Trust (CCT).

The State Administration of Foreign Exchange (SAFE), an agency affiliated to the central bank, granted Shenzhen a total of $1 billion in QDIE quota after provisional measures for the program were announced late last year, but there are no fixed limits to investment by each firm.

The implementation of the QDIE program provides more cross-border investment channels for mainland investors and expands the service scope of cross-border investment institutions, financial analyst Cao Qingzhan said in Beijing.

He said: "The biggest advantage of the QDIE program is that it allows companies to have a much wider investment field. It has no fixed limits on investment destinations, categories and proportions."

Yang Li, lawyer for overseas investment products at the Shenzhen office of Han Kun Law Offices, explained: "The investment field of QDII products is limited in overseas securities investment in general."

As the wealth management concept of mainland investors gradually matures, a growing number of high net worth individuals are looking to the overseas market for asset allocation.

Data from global management consultants Boston Consulting Group (BCG) show that mainland high net worth individuals have about $500 billion invested abroad and that number is expected to double in three years.

Robust wealth creation in the mainland is reflected in the increase in millionaire households, from 1.5 million in 2012 to about 2.4 million in 2013, surpassing Japan's 1.24 million, according to BCG's Global Wealth Report 2014.

The report says the number of ultra-high net worth households (owning more than $100 million in private financial wealth) in the mainland totaled 983 in 2013, one of the top three in the world following the US and UK.

With demand among domestic investors for overseas investment and global asset allocation rising, the market is desperate to break the limits of the QDII program, Yang at Han Kun said.

Since August 2014, a QDLP program has been in effect in Qianhai, allowing qualified domestic investors to raise capital with a $1 billion limit for overseas innovative investment, including traditional stock markets, equity market, real estate and industrial investment.

In addition to investment fields under the QDII program, QDIE products can also be expanded to overseas non-listed company equity, hedge funds, private equity fund and physical assets, Yang said.

"QDLP is mainly open to overseas hedge fund management institutions, but the QDIE program relatively made a further breakthrough in company qualification and investment field," he explained.

Companies that have received QDIE licenses are actively preparing related research and competing to release the first QDIE products.

China Southern Capital told of plans to develop overseas investment into a key product line, focusing on mainland clients with high net worth. The company prefers high quality products with absolute returns and low volatility.

China Merchants Wealth has been researching and developing overseas investment productions since the beginning of 2014, and is in cooperation talks with several overseas asset management organizations, according to a source from China Merchants Fund.

Great Wall Fu-Hao Fund Management is focused on investments in Europe. Xu Mingbo, director of international business at Great Wall Securities, said the company will set up a Sino-Europe cross-border merger and acquisition fund in cooperation with a domestic investment institution and a Europe-based private equity management company.

As the first trust company to have received a QDIE license, Shenzhen Qianhai CCT Asset Management has issued an renminbi fund with a size of 1 billion yuan ($160.2 million) in 2013. So far, it has been granted all cross-border business licenses it applied for.

grace@chinadailyhk.com

(HK Edition 02/11/2015 page7)