The mainland is soon to announce the second batch of qualified domestic institutional investor (QDII) banks, which will be allowed to channel huge domestic capital to overseas markets, said a top regulator.

 

"Definitely, there will be a lot (of new banks to be approved), so long as you are ready," Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC), told bankers in Hong Kong yesterday.

 

His comments came after the banking watchdog approved on Friday the first batch of four mainland banks and two overseas banks to invest funds belonging to domestic clients in fixed-income products offshore.

 

They included the Industrial and Commercial Bank of China, Bank of China, Bank of Communications and China Construction Bank, as well as the mainland units of HSBC and Bank of East Asia.

 

The CBRC said it was assessing applications from other commercial banks, such as China Everbright Bank, China CITIC Bank and some other overseas banks.

 

Liu said the CBRC will use a single standard to evaluate applications to take part in the QDII scheme from either mainland or overseas banks.

 

More than 10 overseas banks, including Dutch lender ABN Amro and Italy's Banca Lombarda, have applied, a market source said, because "they want to tap the mainland's US$1.8 trillion personal savings and to establish good relations with domestic clients before the mainland's banking sector opens wider by the end of the year."

 

In April, the People's Bank of China and the State Administration of Foreign Exchange jointly announced that the mainland's banks could invest, on behalf of their clients, in financial markets overseas. That signals an important deregulation of the mainland's financial regime.

 

Hong Kong is expected to benefit from the move, as the city has long been regarded as a springboard for mainland investors to go global.

 

"I think Hong Kong would be the first investment destination for the approved QDII players," said Tang Sing-hing, associate director with Hong Kong-based Tung Tai Securities, citing the fact that they all trade or will trade their shares in Hong Kong.

 

"They are familiar with Hong Kong," he said.

 

Local bankers also want the mainland to further loosen the regulation to allow them to invest mainlanders' money in overseas securities markets. At present, QDIIs can only invest in fixed-income products and their derivatives.

 

"We all know the opening will be gradual," said an anonymous manager from a local bank. "But we just wish the deregulation would be quicker, to let smaller banks to join in a bigger spectrum."

 

Also on the same occasion, Liu said Hong Kong lenders have been playing actively on the mainland.

 

By the end of April, Hong Kong banks' mainland assets amounted to US$26.3 billion, an increase of more than 30 percent year-on-year, Liu said. They account for 30 percent of overseas banks' total assets on the mainland.

 

By the end of May, 14 Hong Kong banks had set up 50 branches, 28 sub-branches and 23 representative offices on the mainland.

 

(China Daily July 4, 2006)