China's foreign exchange regulator has queried fund managers who invest abroad about use of their foreign currency quotas and clients' demand for overseas products, sources told Reuters, reflecting lingering government concern over capital outflows.
The State Administration of Foreign Exchange (SAFE) sent questionnaires to some fund houses participating in the Qualified Domestic Institutional Investor (QDII) scheme, seeking a picture of demand for overseas investment products, two fund managers who received the query told Reuters. SAFE said on Wednesday on its official microblog that it had not sent the questionnaires and the Reuters report "doesn't conform to the facts".
"The QDII programme has been operating smoothly since 2006, providing a channel for individuals and institutions to invest in overseas assets," the regulator said.
The questionnaire asked fund managers how much they expect the yuan to depreciate over the next year, according to one source. It also required them to acknowledge that there is no basis for persistent depreciation in the yuan's value - a phrase that has become a mantra among regulators seeking to reassure foreign and domestic investors not to dump yuan.
The QDII scheme is a mechanism by which Chinese asset managers, including mutual funds, securities firms, banks, insurers and trust firms can create products that invest in offshore stocks and bonds. QDII quotas have been in short supply recently as domestic investors have sought to reduce exposure to a sliding yuan by buying dollar-denominated products. The shortage is particularly acute because regulators have largely stopped granting fresh quotas since March 2015, in an apparent effort to stem outflows.
The SAFE queries come as an increasing number of fund houses, including Guotai Asset Management Co and CITIC Prudential Fund Management Co, suspended subscriptions for their QDII products after depleting their overseas investment quotas. On Tuesday, SAFE told a press conference in Beijing that cross-border capital outflow pressure has shown significant easing recently.
The comment came as the yuan has in recent months steadied against the dollar. Still, many analysts believe the stability is the result of massive central bank intervention in offshore and onshore markets, including the quiet purchase of forwards and swaps contracts that would guide the market without draining foreign exchange reserves. Even as China has tightened up on Chinese money moving out of the country, regulators have moved to make it easier for foreign money to come in, easing rules on the inbound version of QDII - the Qualified Foreign Institutional Investors (QFII) programme. It has seen regulations eased, and Beijing is also welcoming more "long term" foreign investors into its protected bond market.
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