Both of these programs involve a quota of funds allowed to be invested, but in opposite directions: QFII is for foreigners to invest in China’s A-share markets, and QDII for local managers to invest outside China. However, while this has been one of the most exciting developments in China in recent years, it seems to have ground to a halt lately: no new QDII quota has been issued since July. Some managers, such as E Fund, have gained approval from the China Securities and Regulatory Commission (CSRC) to launch QDII funds, but have not got the additional approval required from the State Administration of Foreign Exchange (SAFE). It is generally assumed that authorities have put a halt to the program while global markets are so volatile – after all the few QDII funds that were launched beforehand have naturally fared very badly – and also that SAFE fears the consequences of capital flight out of China. “Since 2007 many QDII products have caused losses to clients,” says Frank Zhimin Chen, assistant to the CEO and chief investment officer at E-Fund. “As a result the supervisory bodies are wondering whether these products are suitable for clients right now.”

Aside from the local industry trends, there is a widespread feeling in China that the country is one of the better positioned in the world to resume growth. Indeed, it hasn’t stopped growing: while GDP growth rates have fallen from the heady double-digit levels of early last year, they are still highly unlikely to drop below 5%, nothing like the recessionary environment common elsewhere in the world. On top of that, China has put some serious capital to work to try to boost the economy, with a RMB4 trillion stimulus package to be utilised this year.

So the industry may be past the worst. “2009 will definitely be better than 2008 both in terms of performance and assets under management,” says Zhang. “We think the industry stands a good chance to report a net increase for assets under management in 2009. I think the worst has probably passed.”

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