QDII (Qualified Domestic Institutional Investors) is an investment scheme that works opposite the QFII (Qualified Foreign Institutional Investor). It is a scheme under which domestic institutional investors authorized by the government could invest in the overseas capital markets under the foreign exchange control system in China.
QDII was initially proposed by the Hong Kong government to introduce mainland capital to the Hong Kong securities market and to attract more international capital, which was significant to the low-priced Hong Kong securities market after the Asian financial crisis. When QDII was first proposed, the China Securities Regulatory Commission was enthusiastic in promoting the scheme. On the other hand, the State Administration of Foreign Exchange's response was lukewarm, due to foreign exchange control concerns. However, now the table has been turned. Due to growing pressure on the appreciation of renminbi, SAFE is now more active in promoting the scheme, to maintain the stability of the RMB exchange rate, but the Securities Regulatory Commission is becoming more conservative, because the formal adoption of such a scheme might affect the A and B share markets.
Hua'an Fund was the first pilot project for QDII and was only allowed to use hard currency, instead of RMB, for its investment, to reduce risks in connection with QDII. Many banks in China are laying the ground work in preparation for the formal adoption of QDII. While the attitude of various government departments is becoming more receptive to QDII, it is unclear when the scheme will be formally adopted in China.
Judging by successful experiences from other countries and districts, QDII is an effective scheme to assure the steady transition of all market aspects during the gradual process of opening the domestic market to foreign capital. With the process of opening up the domestic securities market, the full adoption of QDII is only a matter of time.