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Total new quotas approved for Chinese financial institutions to invest in offshore securities increased nearly 80% in the first half of the year compared to the same period last year. This rise reflects ongoing efforts to open the capital account, stable foreign exchange reserves, and rising demand from both institutional and retail investors for global asset allocation.
As of June 30, total approved quotas under the Qualified Domestic Institutional Investor (QDII) program reached $176.169 billion, marking a $5.3 billion increase from the end of June last year. Notably, no new quotas were granted in the second half of the previous year.
China’s foreign exchange reserves have remained steady at around $3.4 trillion, providing a strong foundation for expanding quotas. Meanwhile, a crackdown on unauthorized cross-border securities activities has shifted more investors toward approved channels, further increasing the demand for higher quota allocations.
The main driver of this increase has been the stability of forex reserves combined with growing interest in asset diversification among residents, according to Tian Lihui, dean of Nankai University’s Finance and Development Institute.
Specifically, 17 insurance companies received a total of $1.32 billion in new quotas. Of these, 15 insurers were allocated an additional $80 million each, while two received an extra $60 million each.
“Over the past two years, several insurers have requested larger overseas investment quotas from regulators, and some are in the process of applying for QDII qualification,” said Liao Bo, chief macroeconomic analyst at Northeast Securities. Since the program’s launch in 2004, the use of quotas has gone through various phases. Limited quotas have sometimes become a temporary restriction on offshore diversification. Currently, US Treasury bonds, Hong Kong equities, and US stocks are among the most actively pursued assets. It’s expected that insurer quotas will likely see further increases in the future, Liao added.
Data from Wind Information shows that by the end of the first quarter, offshore holdings of QDII assets were heavily concentrated. Hong Kong and the US accounted for over 90% of the total market value of offshore investments. Holdings in Hong Kong amounted to CNY316.1 billion (approximately $46.6 billion), or 51%, while US investments reached CNY246.6 billion (about $36.3 billion), roughly 40%.
Liao predicts China’s economy will continue a gradual recovery, leading to stabilization and eventual rebound in corporate earnings. With US Treasury yields remaining relatively high, insurers are expected to become more active in utilizing their QDII quotas to diversify into Asia-Pacific markets.
Among the promising sectors, Liao highlighted Hong Kong-listed internet companies as a key area for growth, noting their ongoing expansion across value chains. Advances in artificial intelligence and other emerging technologies are ushering in a new Kondratieff Wave, bolstering core technology businesses and creating new high-value commercial opportunities, he emphasized.
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