China bank suspends funds for RQDII: report

The People’s Bank of China has reportedly suspended funds intended for a programme designed to allow Chinese investors to buy renminbi-denominated products abroad, over concerns that such investments were flooding of the market with what were considered to be the wrong kind of products.

News of the reported suspension of the programme appeared in today’s online edition of the Hong Kong-based South China Morning Post.  The article quotes Vincent Duhamel, head of Asia at Swiss private bank Lombard Odier, and follows what the SCMP said had been weeks of speculation that the People’s Bank of China (PBOC) had taken steps to curtail the programme.

Lombard Odier declined to comment officially on Duhamel’s reported comments.  The PBOC has yet to officially announce it has suspended the programme.

The Renminbi Qualified Domestic Institutional Investment (RQDII) programme, which was announced towards the end of 2014, allows domestic Chinese investors to buy overseas financial products denominated in RMB, subject to certain conditions.

In its article, the SCMP  quotes Duhamel as saying: “Before, there were more institutions that were trying to create products for clients to diversify, which is why I think the PBOC put a stop to it, because there was so much pressure building up with financial institutions creating products to accommodate the needs of Chinese clients that wanted to diversify on a global basis.

“The PBOC was trying to figure how to do it with a more systematic and a more orderly fashion.”

Duhamel’s comments echo those made by Clifford Chance in December last year, when rumours of the RQDII programme’s possible suspension were already circulating. It said managers were exploiting the programme, with the use of RMB-denominated structured notes linked to the underlying foreign currency assets.

“These structures are not the typical RMB-denominated products contemplated by the PBOC when it first introduced the RQDII programme,” Clifford Chance said.

“As such distorted RQDII products become more popular on the market, it has attracted more attention from the regulators. We believe the suspension of the RDQII programme is a consequence of the PBOC’s desire to manage the risk of potential RMB outflow.”

According to the SCMP, 200-year-old Lombard Odier is still one of the few private banks still funded by its partners’ own capital. Last year, it noted, the Swiss bank entered into a partnership agreement with Fujian-based Industrial Bank to jointly develop a private banking business. As part of this deal, it was agreed that one of the first joint projects would be the issuing of “a series of bespoke offshore offerings” aimed at the Chinese bank’s high-net-worth clientele.

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James Fernyhough
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