China tightens restrictions on withdrawal of capital abroad through investment funds

Chinese authorities restrict access to funds investing in securities traded outside mainland China, Azernews reports, citing foreign media outlets.

The authorities fear that a sharp increase in the popularity of funds focused on foreign markets among retail investors will increase capital outflow. In August last year, it was reported that the largest management companies in China had almost chosen state quotas for foreign investment.

By now, some funds have already chosen their quotas, while others have been instructed by Chinese regulators to slow down or stop selling their shares.

About a third of funds investing in foreign securities under the Chinese Qualified Domestic Institutional Investor (QDII) program, which is not subject to strict capital withdrawal controls, have suspended or restricted sales of their instruments to retail investors to maintain stable operations and protect the interests of investors, according to public statements from these funds.

Regulators also asked a number of brokerage companies selling fund instruments to retail investors through the QDII program to suspend transactions with ETF units linked to the MSCI USA 50, Nasdaq 100 and Nikkei 225 indices, amid "abnormal trading activity."

The QDII program is the only legitimate way for Chinese retail investors to invest in foreign stocks and bonds.