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News Release

Shanghai

New QDII to encourage further outbound domestic capital from China


Shanghai, Jun 24, 2015  - Details on the new Qualified Domestic Individual Investor ("QDII2") programme have recently made public. Originally devised by the Chinese government to give Chinese institutional investors access to overseas markets, QDII was a success, resulting in USD 43 Billion worth of overseas transaction volumes being recorded.

QDII2 will further encourage outbound investments by domestic capital by raising the outbound investment ceilings for both individuals and institutions and hence facilitate outbound capital flow. 

Figure 1 – China Outbound Investment Volumes 2007-2014 

QDII graphic.png

Source: JLL Capital Markets Research. Data includes both land and commercial asset transactions since 2007

Selective locations for introduction

According to market reports, the new QDII2 may be rolled out as early as June 2015 with Shanghai, Tianjin, Chongqing, Wuhan, Shenzhen and Wenzhou rumoured to be trialled as frontier cities for introduction. Furthermore, free trade zones ("FTZ") in Shanghai and Qianhai (Shenzhen), may also become candidates for early adoption.

QDII2 will have varying degrees of impact on different parties

For a select group of individuals, the programme could give the option to invest up to half the total value of their assets in international financial assets such as real estate. This will be a significant step up from the previous programme which limited individual investments to USD 50,000 per annum. To qualify, it's likely that the individual will need to be an employee of a company located in a FTZ, and possess assets greater than USD 160,000. This may have a significant impact on sectors such as wealth management and securities, allowing them to structure outbound real estate investment products through this new rule.

For institutions, QDII2 will raise the investment ceiling for institutional investment from USD 300 million to up to USD 1 billion. It's unlikely to drive much larger transaction volumes and headline figures, given that outbound Chinese capital has found ways to close multibillion dollar, landmark real estate transactions before.

Instead, institutional investors will feel the impact of QDII2 in different aspects of the transaction process. Chinese insurance companies may benefit from having a stronger exit base for their overseas residential development projects as those that have recently moved into these developments abroad will be able to acquire more Chinese overseas investors into their client base as a result of the new legislation.

Individual investors will have greater investment capacity, allowing them to be a part of an investment pool that can be used to fund multi-million dollar acquisitions in gateway cities such as New York, Sydney and London. In fact, a domestic insurance company recently used a pooled RMB fund, from individual investors, to gain additional leverage and maximize its returns on its overseas office acquisition. Many banks and insurance companies may incorporate this model going forward.

Joe Zhou, Head of Research for JLL East China comments: "QDII2's impact on outbound transaction volumes is undoubtedly positive for Chinese outbound capital. Institutions will reap the benefits along the transaction process while gaining legitimacy in large ticket transactions.  There will be a diversification of the investor base for outbound capital as well as a proliferation of different types of financial products that provide individual investors to gain overseas real estate exposure."

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