China's Offshore Investment Boom-QDII for Fund Management CompaniesEiichi Sekine

I.

Fund management companies launch QDII

Investors from outside of China have long had a high degree of interest in investingin Chinese stocks, but it is now investment in the opposite direction that is starting totake off, i.e., offshore investments by China's domestic investors. Specifically, the
QDII (Qualified Domestic Institutional Investors; "cue-dii") scheme announced by the
Chinese government allows domestic investors (both individuals and corporations) toinvest in offshore securities by using domestic financial institutions with the QDII
designation. When restrictions on QDII were lifted in April 2006, fund managementcompanies (asset management companies) began to establish and sell products(mutual funds), first in a trial run by Hua An Fund Management in September 2006,
and then in earnest from September 2007, after the China Securities Regulatory
Commission (CSRC) established a new set of rules1.

II. QDII products focused on equity investments
1. Product overview
1) All sold out on day of launch
QDII fund management companies are licensed by the CSRC, and their invest limit
is actually approved by the State Administration of Foreign Exchange (SAFE).
The first QDII product, established and sold on 12 September 2007 by China
Southern Fund Management, was initially approved for a US$2 billion investment
limit, but another US$2 billion was quickly added, bringing the total to US$4 billion,
or roughly ¥460 billion (Figure 1) 2 , in response to a surge of applications frominvestors. The second product, from China AMC, was initially approved at US$2.5
1

2

36

Although the lifting of restrictions on QDII in April 2006 also applied to banks andinsurance companies, this paper will focus on the fund management companies andbrokerage houses. For bank QDII, see Eiichi Sekine, Ugokihajimeta Chugoku no Taigai
Shouken Toushi (China's outbound portfolio investment gains momentum), Capital Market
Quarterly, Fall 2006 issue (in Japanese), and for insurance company QDII, see Eiichi
Sekine, China's Insurance Companies Step Up Outbound Portfolio Investment, CapitalMarket Review, Winter 2007.
We use an exchange rate of ¥115=US$1 for currency conversions in this paper.

Nomura Capital Market Review Vol.11 No.1

billion, and then had US$2.5 billion added for a total of US$5 billion (¥575 billion).
The third and fourth products were both from foreign-invested fund managementcompanies. The third, from Deutsche Bank affiliate Harvest Fund Management, wasset at US$5 billion (¥575 billion). The fourth, from JP Morgan Asset Management
affiliate China International Fund Management, was initially approved by thefinancial authorities for an investment of US$4 billion, but just as was the case with
China Southern Fund Management and China AMC, a surge of applications frominvestors resulted in the fund quickly adding approval for another US$1 billion,
bringing the total to US$5 billion (¥575 billion) . All four of the above products (twolaunched by Chinese firms and two by foreign-invested firms) sold out on the day ofthe launch.

Figure 1: Overview of type I QDII products issued by fund managers
Fund management company

China Southern Fund Management

China AMC

(Ownership)(Huatai Securities, 45%; Shenzhen Airport (Group), 30%;
Xiamen International Trust Co., 15%; Industrial Securities,
10%)(CITIC Securities, 60.725%; Southwest Securities, 35.725%;
China Sci-Tech Securities, 3.55%)

Name of fundType
Domestic custodian
Offshore custodian
Offshore investment advisor
Date of approval of investment amountSouthern Global Enhanced Balanced FundContractual, open-end
Industrial & Commercial Bank of China
Bank of New York
Mellon Global Investments
4 September 2007 -- USD2 billion
14 September 2007 -- USD2 billion (additional)
USD4 billion
12 to 28 September 2007 (sold out on first day)Individuals, corporations
Yuan, RMB 1,000
Allocation to mutual funds and equities of 95%, including atleast 60% in mutual funds, no more than 40% in equities, and0 to 40% in money market products
The 35 countries/regions with regulatory bodies that havesigned agreements with the CSRC (at least 90%)
Mature markets (60%): US, Japan, Hong Kong (20%),
Switzerland, Italy
Emerging markets (40%): Russia, India, Brazil, Malaysia,
Korea
MSCI World; MSCI Emerging Markets
Fund management fee (1.85%)
Custodial fee (0.3%)
Per national tax rules
Yes
Yes

China AMC Global Select FundContractual, open-end
China Construction Bank
JPMorgan Chase
T. Rowe Price
10 September 2007 -- USD2.5 billion
26 September 2007 -- USD2.5 billion (additional)
USD5 billion
27 September to 26 October 2007 (sold out on first day)Individuals, corporations
Yuan, RMB 1,000
Focused on equities (at least 60%)

Offering amount
Offering period
Target market
Currency denomination of offering
Target investment products

Target countries and regions

Index (es)Fees (% of NAV)
Taxes
Manages assets for the NSSF
Manages investments for corporate pensions

US, Europe, Japan, Hong Kong (although weighting in Hong
Kong stocks and H shares cannot exceed 30%)
Emerging markets

MSCI World
Fund management fee (1.85%)
Custodial fee (0.35%)
Per national tax rules
Yes
Yes

Fund management company

Harvest Fund Management

China International Fund Management(Ownership)(China Credit Trust, 48%; Lixin Investment Co., 32.5%;
Deutsche Bank, 19.5%)
Harvest Overseas FundContractual, open-end
Bank of China
Bank of China (Hong Kong)
DWS Financial Service
26 September 2007 -- USD5 billion(Shanghai International Trust Co., 51%; JPMorgan AssetManagement, 49%)
CIFM Asia Pacific Advantage FundContractual, open-end
Industrial & Commercial Bank of China
Bank of New YorkJF Asset Management
12 October 2007 -- USD4 billion
18 October 2007 -- USD1 billion (additional)
USD5 billion
15 to 19 October 2007 (sold out on first day)Individuals, corporations
Yuan, RMB 10,000 (for retail and direct sales by banks andsecurities firms), RMB 500,000 (for VIP Asset Management
Center investors)
Focused on equities (at least 60%)
Stock in Asian companies (with corporate registration in the
Asia-Pacific region) that trade on stock exchanges in the AsiaPacific region or other stock exchanges.
Specifically, Australia, Korea, Hong Kong, India, and Singapore(excluding Japan)

Name of fundType
Domestic custodian
Offshore custodian
Offshore investment advisor
Date of approval of investment amount
Offering amount
Offering period
Target market
Currency denomination of offering

USD5 billion
9 to 19 October 2007 (sold out on first day)Individuals, corporations
Yuan, RMB 5,000 (for retails sales by banks and securities
firms), RMB 20,000 (for direct sales)

Target investment products
Target countries and regions

Focused on equities (at least 60%)
Stocks listed on the Hong Kong Stock Exchange, and stocks
listed on the Singapore Stock Exchange, NASDAQ, or New
York Stock Exchange with at least 50% of their operating
income or profit coming from China

Index (es)Fees (% of NAV)MSCI China
Fund management fee (1.8%)
Custodial fee (0.3%)
Per national tax rules
Yes
Yes

Taxes
Manages assets for the NSSF
Manages investments for corporate pensions

Note:
Source:MSCI Asia Pacific (ex-Japan)
Fund management fee (1.8%)
Custodial fee (0.35%)
Per national tax rules
No
No

T. Rowe Price, the offshore investment advisor for China AMC, took on
management of the NSSF's Enhanced US Equity Index on 29 November 2006.
Nomura Institute of Capital Markets Research, based on each fund's offering
materials

China's Offshore Investment Boom -QDII for Fund Management Companies-372) Need for hedging domestic market risks one reason for brisk sales
Including that from Hua An Fund Management , the total approved investment for
QDII fund management companies is now at US$19.5 billion (approximately ¥2.2
trillion), of which US$19 billion (approximately ¥2.1 trillion) was established andsold in only a 1-month time period starting in early September 2007. Considering that
under the QFII program (Qualified Foreign Institutional Investors; "cue-fee"), whichremoved restrictions on investment in Chinese securities by non-resident investors
starting in November 2002, authorized investments over the four-year period ending
end-2006 totaled only US$9.995 billion (approximately ¥1.1 trillion), it is impressivethat QDII fund management companies were able to obtain approval for, and actually
make, such a large amount of investments over such a short period of time3.
This is in contrast to the trial run by Hua An Fund Management one year prior tothe market being fully opened to the QDII fund management companies. Its sales
totaled only US$197 million, versus an initial authorized limit of US$500 million,
which suggests there was a significant change in domestic investors' attitude toward
offshore investments. Local securities firms explain this as being a consequence ofdomestic investors seeking to hedge the risks of their having concentrated investment
on A shares (domestic stocks denominated in Chinese yuan), which have continued topost record highs, by investing in offshore securities markets.

3) Expectations for high returns
After the QDII trial run by Hua An Fund Management in 2006, the newly
established Experimental Measures Governing Regulation of Investments in Offshore
Securities by Qualified Domestic Institutional Investors (QDII Offshore Measures)4,
along with the related circular 5 , made it possible for not only fund managementcompanies (as under the trial run), but also securities firms, to make QDII investments
in a wide range of products, including money market products, bonds, stocks, publicly
offered mutual funds, structured products, and financial derivatives (Figure 2).
Although there are investment restrictions on the amount invested in individual issues,
it is possible to weight portfolios as high as 100% in equities. Investment is allowed in
35 countries and regions that have regulatory bodies with which the CSRC has signed
a memorandum of understanding (Figure 3)6.
3

4
5

6

38

According to SAFE, total approved QDII investment as of end-September 2007 was
US$42.17 billion, including US$16.1 billion for 21 banks, US$19.5 billion for five fundmanagement companies, and US$6.57 billion for 14 insurance companies, of which
US$10.86 billion (about 26%) has actually been invested.
Promulgated on 18 June 2007 and implemented from 5 July 2007 (Ref: Decree No. 46 of
the China Securities Regulatory Commission Directive).
The official name for this is the Notice Regarding Issues Relating to Implementation of the"Experimental Measures Governing Regulation of Investments in Offshore Securities by
Qualified Domestic Institutional Investors." It was promulgated on 18 June 2007 andimplemented on 5 July of that year.
The circular promulgated with the QDII Offshore Measures prohibits investing any morethat 10% of net assets in securities that trade in countries and regions without a regulatory
authority that has signed memorandum of understanding with the CSRC.

Nomura Capital Market Review Vol.11 No.1

Figure 2: QDII investments by fund management companies and securities
firms
Eligible offshore investments

Specific productsBank deposits
CDs
Bank fundedBank acceptances
Commercial bills
Repos
Treasury bills
Government bonds
Corporate bonds
Convertible bonds
MBS
ABS
Bonds issued byinternational financial
institutions
Common stock
Preferred stock
GDRs & ADRs
REITs

Money market products

Bonds

StocksPublicly offered mutual funds

No

Structured productsNo

Financial derivatives

Forward contracts
Swaps
Warrants
Options
Futures

Source:Notes

Bonds issued by international financial
institutions limited to bonds approvedby the SCRC, including those issued by
the World Bank and the AsianDevelopment Bank.
Limited to issues listed and traded on
stock exchanges in countries andregions with regulatory bodies that havesigned agreements with the CSRC.
Limited to publicly offered mutual funds
registered in countries and regions withregulatory authorities that have signed
agreements with the CSRC.
Structured products linked to fixedincome products, private equity, credit,
commodity indices, and funds.
Financial derivatives limited to thoseused for hedging. Warrants, options,and futures limited to issues listed andtraded on offshore stock exchanges
approved by the CSRC.

Nomura Institute of Capital Markets Research, based on Experimental Measures
Governing Regulation of Investments in Offshore Securities by Qualified Domestic
Institutional Investors and the related circular

Figure 3: Countries and regions with regulatory bodies that have signed
agreements with the CSRC
RegionCountry/region

North America

US, Canada

South America
Asia

Brazil, Argentina
Hong Kong, Singapore, Japan, Malaysia, South Korea, Indonesia, Vietnam, India,
Jordan, UAE, Thailand, Mongolia
UK, France, Luxemborg, Germany, Italy, the Netherlands, Belgium, Switzerland,
Turkey, Portugal, Norway, Romania, Ukraine, Liechtenstien

EuropeNote:
Source:AfricaEgypt, South Africa, Nigeria

Pacific

Australia, New Zealand

As of 31 January 2008.
Nomura Institute of Capital Markets Research, based on materials from the CSRC

China's Offshore Investment Boom -QDII for Fund Management Companies-

39

Although all four of the QDII products described above invest primarily in equities
based on these rules (and are equivalent to offshore equity mutual funds), there aredifferences in the specific investment policies of each fund. The domestic fundmanagers, China Southern Fund Management and China AMC, primarily target theirinvestments in Japan, the US, Europe, Hong Kong, and emerging markets. The
foreign-capitalized Harvest Fund Management targets stocks listed on the Hong Kong
Stock Exchange as well as China-related stocks listed on the Singapore Stock
Exchange, NASDAQ, and the New York Stock Exchange, while the other foreigninvested fund, China International Fund Management, targets its investments on thestock of Asian companies listed on stock exchanges in the Asia-Pacific region andelsewhere . Although there are differences in the targeted countries and regions,
China's domestic investors appear to be attracted by the prospect of earning highreturns through such a focus on equity investments. This provides some differentiation
for investors from the QDII products established by the commercial banks, which are
limited by the China Banking Regulatory Commission (CBRC) to a maximum equity
weighting (based on net assets) of 50%.

2. Investment personnel and the investment decision process
1) Fund manager is key
For the fund management companies to steadily realize the investment objectivesof their QDII products, it is imperative that they hire and retain skilled fund managers
with offshore investment experience and expertise. In this regard, as well, differences
have emerged in the investment policies of each fund.
Whereas China Southern Fund Management, China AMC, and China International
Fund Management have focused on fund managers who are either from Taiwan or
have offshore investment experience in Taiwan, Harvest Fund Management, because
it is a joint venture with Deutsch Bank, has targeted fund managers with work
experience at foreign financial institutions, particularly at Germany-affiliatedinstitutions, (Figure 4) . According to the prospectus, the fund manager at China
Southern Fund Management also gained experience investing in Japan funds while at
Shinkong Securities in Taiwan, which suggests a high likelihood that Japanese stocks
will be included in the portfolio.

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Figure 4: Fund manager snapshots
Southern Global Enhanced Balanced FundName
Xie Weihong (native of Taiwan)
Year of birth not available
Title
Managing director, Department of International Business TN
Education
Masters in Financial Management TN, University of Illinois
Work
Fubon Insurance Co., Ltd. (Taiwan), Investments Division TN
July 1994 to June 1999
experience
Chinatrust Bank (Taiwan), Financial Affairs Department TN
October 2000 to April 2002
CDIB Partners Investment Holding Corporation (Taiwan), manager,
April 2002 to January 2004
Research Department TN
Shinkong Securities (Taiwan), Manager, Offshore Investments Division
February 2004 to May 2007
TN
Joined China Southern Fund Management
May 2007
12 years experience in offshore investing, including responsibility for managing Japanese fund when at
Notes
Shinkong Securities
China AMC Global Select Fund
Name
Yang Chonghong (native of Taiwan)
Year of birth not available
Title
Director, Offshore investments TN
Masters in Finance TN, University of Tennessee
Education
Work
Over 10 years in securities business, working since 1990 at mutual fund and securities firms in Taiwan
experience
January 2005
Joined China AMC
Harvest Overseas FundName
Li KaiYear of birth 1971
Title
Assistant General Manager TN, Harvest Fund Management
Education
Masters in Economics, Ph.D. in Finance, New York University
Over 8 years in the securities business at Deutsche Bank, Ziff Brothers Investments, Dresdner Kleinwort,Work
and UBS Paine Weber
experience
April 2007
Joined Harvest Fund Management
CIFM Asia Pacific Advantage Fund
Name
Yang Yifeng (native of Taiwan)
Year of birth not available
Title
Fund manager
Education
not available
Over 13 years in the securities business in Asia (ex-Japan) at Nan Shan Life Insurance (Taiwan) andWork
JPMorgan Fleming
experience

Source:Nomura Institute of Capital Markets Research, based on materials from therespective companies.

2) Acquiring expertise from offshore investment advisors
Under the QDII Offshore Measures, QDII-designated institutions are authorized toutilize offshore investment advisors when establishing and managing QDII products7.
China Southern Fund Management uses Mellon Global Investments as its offshore
investment advisor, and receives (1) advice on asset allocation, (2) advice related tothe investment portfolio, (3) assistance with executing trades, (4) assistance withevaluating the performance of fund managers (those who establish and manage QDII
products), and (5) assistance with managing asset risk for fund managers. The
division of duties between fund managers and offshore investment advisors at China
Southern Fund Management, with respect to asset allocation, trade execution,
7

Article 13 of the QDII Offshore Measures stipulates the requirements that must be met byasset management companies and investment advisors in order to qualify as offshore
investment advisors. Numerical criteria include at five years experience managing assets
and at least US$10 billion in securities assets under management the prior fiscal year.

China's Offshore Investment Boom -QDII for Fund Management Companies-

41

performance reviews, and the investment decision-making process, including risk
management, is shown in Figure 5. The key point here is that based on the investment
management process of Plan, Do, and See, the fund management company isfollowing a unified investment decision-making process that mixes fund managers
hired from the outside with offshore investment advisors, as a way to build up inhouse experience and expertise in the area of offshore investments. This is a challengethat is common to all of the fund management companies that establish and manage
QDII products.

Figure 5: China Southern's process for making QDII investment decisions
Stage(1) Asset allocation

Primary person responsible
Fund manager

Details
The fund manager determines asset allocations using the following
procedures.
•The fund manager and offshore investment advisor hold a monthly
asset allocation meeting.

(2) Trade execution(3) Performanceassessment(4) Risk management

Source:3.

Fund manager

Fund manager
Fund manager andOffshore investment advisor•The offshore investment advisor submits each month to the fundmanager a proposal regarding regional selections and asset
allocations.
•The fund manager adjusts asset allocations, referencing the offshore
investment advisor's proposal.
The fund manager obtains prior approval from the fund managementcompany's internal investment committee.
The fund manager gives instructions to the trading department, andthe trading department passes on the trading instructions to theoffshore broker.
The trading department passes on trading information received fromthe offshore broker to the fund manager.
Factors contributing to performance are assessed using regression
analysis.
The two establish a joint risk management group, establish risk
managment rules, and effectively manage risk.

Nomura Institute of Capital Markets Research, based on materials from China
Southern

Other offshore providers of outsourced services

1) Offshore custodians
Article 18 of the QDII Offshore Measures stipulates that, in addition to domestic
custodians, offshore custodians that provide custodial services outside of China canalso be used8.
China Southern Fund Management has chosen the Bank of New York (BONY) as
its offshore custodian, and BONY is responsible for ensuring the safe storage of thefund management company's entrusted property (Figure 6).

8

Article 19 of the QDII Offshore Measures stipulates the requirements that must be met toqualify as offshore custodians. Numerical criteria include either actual capital of over
US$1 billion and or least US$100 billion in assets under management.

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Figure 6: Role of offshore custodian for China Southern's QDII products(1) Keep secure custody of entrusted property(2) Calculate net assets of entrusted offshore assets(3) Clear and settle entrusted assets(4) Open cash and securities accounts for entrusted assets(5) Provide accounting registration and trading information related to custody services(6) Keep custody of registrations, ledgers, and other documentation related to custodial services
for entrusted assets(7) Other items not handled by the domestic custodian

Note:
Source:The Bank of New York was chosen as the offshore custodian.
Nomura Institute of Capital Markets Research, based on materials from China
Southern2) Offshore brokers
When making trades based on advice from offshore investment advisors and on
decisions made by internal investment committee, the trades may be executed using
an offshore broker (Article 3 of the QDII Offshore Measures).
Although China AMC has not disclosed who they use, we note their criteria for
selecting an offshore broker is (1) ability to execute trades, (2) research support
services, (3) financial strength, (4) the convenience and reliability of back-officeservices, and (5) organizational structure and composition of services (Figure 7).

Figure 7: Standards for selecting offshore brokers(example for China AMC's QDII products)
Item

Requirements(1) Ability to execute orders

Able to deal with all customers equally and execute orders
properly, reliably, and faithfully at the best price.
Provide sufficient liquidity and have minimal trading errors.

(2) Research support services

Provide high-quality research reports to meet demand forbasic services.

This includes recommending names, making company visits,
providing market price references, engaging in specialized
research, and assisting in valuing transactions.
(3) Financial strength
Rank among industry leaders in indicators of net assets,market capitalization, and assets under management, or
provide a sufficient level of security.
(4) Convenience and reliability of Be capable of providing assistance with a large number ofback office services
ideas related to trades and settlements, have strong
capabilities in software redevelopment, and have stable andsecure systems.
(5) Organizational structure and Be well-positioned in terms of abiding by rules, aggressively
composition of services
promote cooperation across diverse businesses, and be
capable of maximizing all resources aimed at ensuring profits
for the fund.
(6) Other
Have elements in business base that are advantageous tofund holders.

Source:Nomura Institute of Capital Markets Research, based on materials from China
AMC

China's Offshore Investment Boom -QDII for Fund Management Companies-

43III. Outlook for new approvals
1. List of new approvals for the future
In August 2007, prior to the establishment and sale of QDII products by fundmanagement companies, the Securities Association of China (SAC) held a two-day
seminar (30 to 31 August) on QDII Operations. The seminar covered such practical
topics as QDII-related investment, marketing and sales, product design, trading,settlement, the transfer agent (TA), and calculating net asset value, as well as
regulatory issues, including GIPS (global investment performance standards) anddomestic laws concerning QDII.
Only 20 fund management companies and four brokerage houses were invited tothe seminar (Figure 8), and these companies appear to have been singled out for fast
track status in obtaining a QDII license and approval for an investment maximum. In
fact, 13 companies have already obtained a license 9 . As the number of fundmanagement companies and brokerage houses with the QDII designation increases,
we expect finding fund managers with offshore investment experience and expertise,
as well as building a research organization to cover offshore securities markets, will
become an even bigger challenge moving forward.

Figure 8: Participants in the Securities Association of China QDII seminar
1. Fund management companies (20 companies)
Chinese firms
Hua An Fund Management
China Southern FundManagement
China AMC
Bosera Funds
Da Cheng Fund
Yinhua Fund Management
GF Fund Management
China Universal AssetManagement

Authorized
investment
USD500 million
USD4 billion
USD5 billion

Guotai AMC

Foreign-invested firms

Authorized investment

Harvest Fund Management
China International Fund Management

USD5 billion
USD5 billion

ICBC Credit Suisse Asset Management
Fortune SGAM Fund Management
Fortis Haitong Investment Management
Penghua Fund Management
Changsheng Fund Management
Fullgoal Fund Management

USD3 billion
Has obtained license
Has obtained license

UBS SDICCCB Principal Asset Management
Bank of Communications Schroder FundManagement

Has obtained license

2. Securities firms (4 firms)
Chinese firms
CITIC Securities
China Merchants Securities
Guotai Junan Securities

Note:
Source:Authorized
Foreign-invested firms
investment
Has obtained license China International Capital
Has obtained license
Has obtained license

Authorized investment
Has obtained license

Held in Beijing on 30-31 August 2007
Nomura Institute of Capital Markets Research, based on materials from the
Securities Association of China, www.chinafund.cn, and the respective companies.

9

As of 11 December 2007.

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Nomura Capital Market Review Vol.11 No.1

2. Linkage with other investment-related qualifications
Of the four fund management companies that were first to offer QDII products,
three of them, China Southern Fund Management, China AMC, and Harvest FundManagement, are investing on behalf of the National Social Security Fund (NSSF),
which was established to fund social insurance benefits, and the three have also
obtained qualification as asset managers under the new defined-contribution corporate
pension rules introduced in 2004. In addition, T. Rowe Price, which was selected as
an offshore investment advisor for China AMC, took on management of the NSSF's
enhanced index of US equities in November 2006.
We therefore think that experience in managing China's main domestic pension
plans, the NSSF and corporate pensions, may be a factor that is taken into
consideration when approving QDII status for fund management companies.

IV. Conclusion
The net asset value (NAV) of QDII products sold by fund management companies
since September 2007 has been below their initial NAV of Rmb1 since November(Figure 9). All of the companies apparently started out in the familiar territory ofHong Kong shares, and thus have been hurt by the decline in the Hong Kong stock
market 10 . Consequently, the offshore equity mutual fund that ICBC Credit Suisse
Asset Management began selling on 3 January 2008 did not sell out on the day oflaunch11. The sale of QDII products by fund management companies is just getting
started, and the local newspapers are starting to report that the fund managementcompanies are weaning themselves off of the "incubator" provided by the domestic
market and gaining investment experience in offshore markets, albeit while having to
pay a tuition of sorts 12 . Although the QDII products from the fund managementcompanies are breaking new investment ground by investing in offshore securities,
attracting skilled fund managers with offshore investment experience and know-how
is still the key issue, as noted above, and this means that the fund managementcompanies and the Chinese government must start focusing more on taking steps toacquire their own offshore investment expertise.
It was not until 1970 that Japan first allowed the inclusion of offshore securities
within investment trust portfolios. Japan's first step toward liberalizing offshore
security investments was to authorize investment trusts established and solddomestically to start adding offshore securities to their portfolios, up to a maximum of
US$100 million. Then in 1972, it became possible to start selling in Japan offshore
mutual funds that were established under the laws of a foreign country. Although the
10
11

12

Nikkei Kin'yu Shimbun, 5 December 2007 edition.
This asset management company is a joint venture between the Industrial & Commercial
Bank of China and Credit Suisse First Boston. The enrollment period ends on 1 February
2008. The planned portfolio is a mix of Chinese stocks listed on offshore stock exchanges
and stock in foreign companies that generate earnings on China's economic growth.
China Securities Journal, dated 3 December 2007.

China's Offshore Investment Boom -QDII for Fund Management Companies-

45

deregulation of QDII products offered by China's fund management companies is thenext necessary step, we think that China, like Japan, will also probably start looking atallowing the domestic sale of offshore mutual funds. QDII trends at the fundmanagement companies should continue to attract interest.

Figure 9: NAV of QDII products from fund management companies(Yuan)Southern Global
Harvest Overseas

Note:

Source:46

2008.1.25

2008.1.18

2008.1.11

2008.1.4

2007.12.31

2007.12.21

2007.12.14

2007.12.7

2007.11.30

2007.11.23

2007.11.9

2007.11.16

2007.11.2

2007.10.26

2007.10.19

2007.10.12

2007.9.28

2007.9.21

1.050
1.025
1.000
0.975
0.950
0.925
0.900
0.875
0.850
0.825
0.800
0.775
0.750

China AMC Global
CIFM Asia Pacific

For CIFM Asia Pacific's 31 December 2007 NAV, we use NAV as of 28 December
2007.
For China AMC Global's 11 January 2008 NAV, we use NAV as of 10 January
2008.
Nomura Institute of Capital Markets Research, based on materials from therespective companies.

Nomura Capital Market Review Vol.11 No.1