Qualified Domestic Institutional Investor (QDII)

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.

On May 11 2007, the China Banking Regulatory Commission (CBRC) announced that it's extending the spectrum of QDII products to overseas stocks. A bank will be allowed to invest no more than 50 percent of a single wealth management product in foreign stocks. However, banks can neither pour more than 5 percent of a wealth management product into a single stock, nor use their own money in such investment.

The CBRC would not allow QDII funds to invest in other overseas stock markets in the near term apart from Hong Kong, as it was the only market with a memorandum of understanding for related regulatory cooperation