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China to relax boundaries further for outbound investment

By Juwai, 02 June 2015
chinese yuan currency

China has just laid the groundwork for potentially even greater Chinese investment overseas, as news of the Chinese government’s latest decision to further loosen capital controls went viral.

Following previous policy relaxations, including unprecedented overseas investment reforms by the NDRC, China has unleashed yet another strategic move to globalise the yuan and bolster China’s bid to officially make it into the IMF basket of reserve currencies (SDRs).1

Last Friday, Assistant Minister of Commerce Zhang Xiangchen announced that China will soon allow companies and individuals to seek direct investments abroad soon via the QDII2 plan.2

 

What is QDII2?

Once officially passed, the QDII2 (Qualified Domestic Individual Investor Programme) will allow direct investment, acquisitions, and mergers overseas for both eligible and approved corporates and individuals.3

This includes real estate, stocks, bonds, mutual funds, insurance, and financial derivatives.3

Expected to kick off in six cities – Shanghai, Shenzhen, Tianjin, Wuhan, Chongqing, and Wenzhou4 – the QDII2 would be open for application to eligible individual investors bearing financial assets worth at least RMB1 million. However, qualified individuals will only be able to invest up to half of their total assets abroad.

Meanwhile, corporate investors would see their investment limits increased from their current limit of $300 million to $1 billion.

Nevertheless, it is expected that the Chinese government will be taking baby steps and proceed with QDII2 very carefully – even as they edge one step closer to attaining their objective of becoming the fifth reserve currency in the world.

 

What does this mean for the world?

Previously, we wrote about how China’s shrewd move powered a global outbound investment boom, charting a record $102.9 billion last year – of which $18 billion came from real estate investment overseas alone.

Within the first four months of 2015, China’s outbound non-financial direct investment (ODI) hit $34.97 billion – a healthy 36.1% increase that bodes well for the remaining eight months to come.5

Hang on, though…it gets even better.

According to China’s Ministry of Commerce, Europe is hot with Chinese – Chinese ODI into the European Union skyrocketed 487%, while Chinese ODI in Germany spiked by as much as 246% y-o-y within Q1 of 2015.6

And this is all BEFORE this latest stunner from China.

We leave you to put your imagination to good use on visualising how this latest development from China would significantly impact and shape the global economy – especially in the roaring property industry that has already been propelled to new heights by Chinese money.

 

 

Sources: 1. WSJ; 2. Mingtiandi.com; 3. Financial Times; 4. Security Times; 5. Ministry of Commerce of People's Republic of China; 6. Deutsche Welle

[Image source: Web on China]