2010-07-01 13:56

SHANGHAI - China may let Hong Kong subsidiaries of domestic brokerages and fund managers facilitate investments of offshore yuan deposits back into mainland capital markets in a pilot scheme as soon as this year, local media said on Thursday.

Under the scheme, dubbed "mini-QFII", institutions will be allowed to channel yuan held offshore into investments in China within certain quotas, the 21st Century Business Herald reported.

Currently, foreign investors can only invest in local-currency stocks and bonds in China under the Qualified Foreign Institutional Investor scheme, after converting foreign currencies into yuan.

Hong Kong-based banking sources told the newspaper that they expected the scheme to be implemented either by the end of this year or early 2011.

Yao Gang, the vice chairman of China's securities regulator, said last weekend that the government was studying how to promote the "mini-QFII" scheme, but did not give a timetable.

The scheme is part of China's plans to promote international use of the yuan, in order to reduce the country's reliance on the US dollar in cross-border transactions.

Those efforts include a separate program for allowing some foreign trade transactions to be conducted in yuan.

One of the constraints to the development of that program has been that businesses being paid in yuan have few places to park their money other than bank deposits, meaning that creating more opportunities to invest yuan could help in the development of those efforts as well.

The "mini-QFII" plan is likely to be limited to around 10 billion yuan initially, fund consultancy Z-Ben Advisors said in a research report on Wednesday.

The full-fledged QFII program, by comparison, enables institutional investors including UBS to invest a total of roughly $30 billion in China's capital markets.