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China frees banks to invest in Britain

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CHINA has eased control on overseas investments by opening the door for its banks to invest in British stocks and mutual funds.

Britain yeserday became only the second destination, after Hong Kong, in which Chinese banks can invest their clients’ money.

The reforms are expected to boost investment in London’s biggest companies as well as bring a welcome injection of liquidity into global markets. However, analysts said yesterday that the change would not happen “overnight”.

China’s Qualified Domestic Institutional Investor program (QDII) will allow banks to direct some of their funds to Britain. They may only invest in countries whose regulators have signed a memorandum of understanding with the China Banking Regulatory Commission.

The move is the latest development in a Chinese scheme to encourage limited capital flows out of the country and to relieve upward pressure on the yuan.

Banks will soon receive permission to invest QDII funds in US stocks and mutual funds as well.
Chinese brokers and mutual funds with a total QDII quota of nearly $US40 billion ($A46.7 billion) are already allowed to invest their customers’ funds in stocks in 33 countries.

While the relaxation is unlikely to result in a sudden rush of money into London, fund managers yesterday said the change would benefit FTSE 100 companies and global markets in the long term.