By Li Zengxin (chinadaily.com.cn)
Updated: 2007-09-12 16:29

China is under severe inflationary pressures as the consumer price index reached an 11-year high of 6.5 percent in August. In addition, China's August trade surplus reached US$24.97 billion, up from US$18.8 billion a year earlier, or nearly 33 percent year on year.

To mop up excessive liquidity, not only macro economic policies but also more investment channels for the Chinese people are needed, said analysts. In absence of a multi-layer capital market, Chinese residents have fewer choices other than the stock market in which to invest their savings.

The qualified domestic institutional investor (QDII) that invests domestic clients' money in overseas stock markets may help divert some of the capital flow. China is closely watching the proceedings of the QDII trial business, will adjust and improve QDII rules constantly, and expand the investment scope of the program, said Gui Minjie, vice chairman of the China Securities Regulatory Commission in Hong Kong yesterday.

The country's first stock-oriented fund under the QDII program was launched by China Southern Fund Management Co Ltd today, the Beijing Daily Messenger reported.

The new fund differs from existing QDII funds in that it will be available for redemption and purchase daily after a maximum three-month lock-in period. And its net asset value will be published every trading day. The new fund can invest 100 percent of its assets in global stock markets, instead of investing only in low-risk, low-return bond and currency markets.

Inflation also makes investment in fixed-asset and precious metals more attractive. Gold prices tend to go against other capital market trends, and investors often look to gold for profit when the stock market is bearish. But the "more than affluent" money floating in the economy completely offsets such effect and spills over to the precious gold market, said analysts.

In order to hedge risks, the securities regulator yesterday approved gold futures trading on the Shanghai Futures Exchange (SHFE), the fourth new futures product to be launched in China this year. SHFE said yesterday gold futures contracts will be traded in the near future after the China Securities Regulatory Commission gave the green light.

"Gold futures are expected to be traded more actively than other metal futures, because investors consider gold as a financial instrument and not just a metal," said Li Jingyuan, an analyst at Haifu Futures Co.

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