China's foreign exchange authority has granted overseas investment quotas totaling US$4.8 billion to three qualified domestic institutional investors (QDII).

According to the announcement from the State Administration of Foreign Exchange (SAFE), the Bank of China, the Industrial and Commercial Bank of China and the mainland subsidiary of the Bank of East Asia have been approved to buy foreign exchange worth 4.8 billion dollars on behalf of their clients for overseas investment.

The QDII scheme allows mainland institutions and residents to entrust mainland commercial banks to invest a certain amount of money in financial products overseas, and allowing insurance institutions to invest part of their assets in overseas fixed-income products and money-market products.

This is the first time for Chinese commercial banks to get such investment quotas in history, the Xinhua-run Shanghai Securities Journal reported.

After receiving the quota, the three banks will then raise Renminbi fund from domestic individuals and institutions and change them into foreign currency for overseas investment.

The Bank of China, the Industrial and Commercial Bank of China and the mainland subsidiary of the Bank of East Asia received investment quotas of US$2.5 billion, US$2 billion and US$300 million respectively from the State Administration of Foreign Exchange.

The China Construction Bank, the Bank of Communications and the Hongkong & Shanghai Banking Corp. have also submitted their QDII quota applications, and the SAFE is examining their applications.

The China Banking Regulatory Commission has approved six banks including the Industrial and Commercial Bank of China, the Bank of China, the China Construction Bank, the Bank of Communications as well as the mainland subsidiary of the Bank of East Asia and the Hongkong & Shanghai Banking Corp., to start overseas investment on behalf of their domestic clients.

These banks have a great demand for such quotas, showing the QDII service will have a broad market in the future, the SAFE said.

Due to expectation on further Renminbi appreciation, huge amounts of foreign exchange rushed into China in recent years, pressuring Renminbi to go even higher.

The QDII policy will help domestic fund to go out and alleviate the pressure, according to the newspaper.

Besides QDII, the Chinese government launched the QFII (qualified foreign institutional investor) pilot program in 2003, allowing foreign institutional investors such as UBS, Deutsche Bank and Citigroup Global Markets Limited to engage in the securities business on the Chinese mainland.

To date, 42 foreign investment institutions have been approved as QFIIs and the SAFE has awarded investment quotas totaling US$7.145 billion to QFIIs.

The newspaper expected the QDII quota to exceed that of QFII and reach 10 billion dollars after the other three banks' applications are approved.