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Its Chinese Clients' New Offshore Channel Investments Are Suspended By StanChart

Its Chinese Clients' New Offshore Channel Investments Are Suspended By StanChart
Due to the weakening of the local market and currency, Standard Chartered has stopped accepting new investments from its clients in China into offshore goods through a quota-based route. The bank announced this move in response to a spike in demand for foreign investments.
The London-based bank stopped accepting new investments under the qualified domestic institutional investor (QDII) programme, citing "commercial reasons" in a statement. It didn't go into detail.
The action by StanChart coincides with Beijing's attempts to stop capital flight as savers shift their investments overseas due to the weakening yuan and a sluggish economy.
The greatest avenue for Chinese investors to make outward investments is still the QDII programme, which was introduced in 2006. A quota established by the State Administration of Foreign Exchange (SAFE) caps the programme.
The project facilitates investments in offshore funds, bonds, and other structured products by Chinese corporate and wealth clientele.

StanChart announced last week that, as of last Thursday, it will no longer accept new subscriptions for offshore-domiciled funds sold through the QDII scheme in a client note that was examined by Reuters.
In response to questions from Reuters, Standard Chartered China stated, "For commercial reasons, the subscription of relevant products has been suspended."

Since late 2022, domestic investors have become more and more interested in foreign assets due to China's stock market performance falling short of that of the United States and other major offshore markets.
This month, China's blue-chip CSI300 index fell to five-year lows and has lost 18% in roughly a year due to a lack of significant government assistance and an unparalleled debt crisis in the real estate industry.
"Based on the data the probability is far greater that it was a commercial decision based on quota limitations rather than a stab in the dark that guidance from Beijing forced the issue," said Peter Alexander, founder and managing director of China consultancy Z-Ben Advisors.
"There's been no new quota issued to StanChart since 2021," he said. "Clearly there's been a surge in demand over the past several months and with that QDII quota capacity would have been reached."
Due to political and economic unrest, a large number of Chinese investors have been shifting their funds to other markets, particularly Japan, which has helped the benchmark Nikkei index reach record highs.
Since last August, Beijing has introduced a number of market-supporting policies, such as lowering trading expenses, limiting the speed at which IPOs are made, and giving the introduction of equity funds priority.
StanChart's action coincides with fresh pressure on China's yuan's decline in 2024, as the dollar has strengthened due to market speculation that the Federal Reserve may delay reducing interest rates longer than anticipated.
Thus far this year, the yuan has dropped 1.4% compared to the US dollar.
In 2015, when fluctuations in the Chinese stock and currency markets spurred capital flight, China informally stopped QDII. Three years after Chinese markets settled and the yuan appreciated significantly versus the US dollar, the programme was resurrected and opened a new tab.
StanChart's action coincides with CEO Bill Winters' recent promotion of China potential, with wealth management viewed as a key development pillar and the bank's cross-border services providing it a competitive advantage over domestic rivals.
"I don't see any need for or any likelihood of material restrictions on capital flows for Chinese savers or corporations," Winters said on the bank's earnings call on Friday.
"I think there have already been some increased restrictions on offshore flows," he said when asked about the impact of potential tightening measures from Beijing on its cross-border business.
According to the most recent data from SAFE, StanChart has been granted a total QDII quota of $2.8 billion since 2006. This makes it the third largest among international banks, only surpassed by HSBC's $4.73 billion and Citigroup's $3.5 billion.
The amount of the quotas that have been used has not been made public by the regulator or the banks.

Christopher J. Mitchell

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