Shanghai to allow Chinese citizens to invest in overseas markets

The Shanghai Stock Exchange is planning to establish the Qualified Domestic Individual Investor program, or QDII2, by which Chinese citizens can directly invest in overseas markets.

The local government in Shanghai’s Pudong district announced on Tuesday on its official website the launch of the new program, which is part of China’s Pilot Free Trade Zone, or FTZ, a trial run for China to further open the country’s economy.

Zheng Yang, director of the Shanghai Financial Services Office, said in a seminar on economic and financial reforms over the weekend that efforts to launch the program under the FTZ were underway.

Currently, only institutional investors can directly invest in overseas markets from China, under the Qualified Domestic Institutional Investor program, or QDII, whereas individual investors only have indirect access to foreign stock markets through banks or Chinese mutual fund schemes.

Zheng said that authorities were also considering the possibility of increasing the annual maximum of foreign currency that Chinese citizens residing in the country can buy under QDII2, its current limit amounting to about ?47,000 (or $50,000) per person.

QDII2 is a part of a series of 51 reform measures being jointly drafted by the government in Shanghai, People’s Bank of China and the state’s banking, stock exchange and insurance regulatory authorities, Zheng said at the seminar.

Those backing the proposal hope that the move will serve to increase the yuan’s capital account convertibility and promote its use as a currency for international trade.

The development of these measures coincides with a recent approval to extend the scope of the FTZ laboratory, testing economic and financial reforms before implementing them in the rest of the country, to Shanghai’s financial district.

The zone, created in September 2013 from preexisting logistical, port and airport facilities, will expand its current area of 28.78 square kilometers (11.11 square miles) to 120.27 square kilometers (46.44 square miles), and will include Lujiazui, dubbed China’s Wall Street, and the industrial and technological parks of Jinqiao and Zhangjiang.

In January, Beijing announced it would setting up similar zones in Tianjin, Fujian and Canton, the last of which may be operational by the end of March.