Australia: Are we ready for a (tidal) wave of Chinese investment?

Last Updated: 8 June 2015
Article by Carl Hinze

Recent press articles in Australia have spoken of "waves of investment" flowing into Australia from China and from Australia into China. The expression "waves of investment" can conjure optimism, especially among those who are well placed to ride such waves to greater financial success. However, "tidal waves of investment" creates an entirely different feeling. It is difficult to foresee the full extent of the rising swell, but Australia should prepare to be a big wave rider as its investment relationship with China quickly gathers momentum.

Australia-China Relations Institute Deputy Director, Professor James Laurenceson, recently reported that new data from the Australian Bureau of Statistics (ABS) shows that not only is China our most important trade partner, but it is on the verge of becoming our most important investment partner. According to the ABS, in 2013 and 2014, two-way investment with China surged by $71.3 billion. This was not only the result of a substantial increase in Chinese investment in Australia, but also because of a significant jump in Australian investment in China.

China's great sea wall

Mainland China has for years protected itself from the nasty consequences of financial tsunamis by a great sea wall, which has to a large extent separated its capital markets from the rest of the world. This wall has many parts, but the foundation stones have been mainland China's closed capital account and its strict foreign currency exchange controls. So, companies, banks and individuals cannot move money in or out of mainland China, except in accordance with strict rules.

Restrictions facing mainland China's institutional investors

Mainland Chinese institutional investors (fund management companies, commercial banks, insurance companies, securities houses, trust companies) have been – until recent developments – limited to investing outside of mainland China only through the channel of China's Qualified Domestic Institutional Investor (QDII) scheme. The QDII scheme permits outbound investment by mainland Chinese investors through the above-mentioned designated qualified financial institutions. It requires the said mainland Chinese institutional investors to obtain an approval from the relevant mainland Chinese banking, securities or insurance regulator and a foreign exchange quota from mainland China's foreign exchange regulator before the institutional investor can invest in qualified offshore financial products.

Restrictions facing mainland China's individual investors

Since 2006, mainland Chinese individuals have been allowed to invest abroad through funds that are licensed under the QDII scheme. Even given that mainland Chinese regulators have been quite supportive of QDII applications and generous with quota – especially during times of relative economic strength (to help remove liquidity from the economy) - for a nation with a household savings pool of about $US8 trillion, the existing $US88 billion QDII quota is small.

Outside of the QDII scheme, mainland Chinese individuals have largely been limited to buying the equivalent of $US50,000 in foreign currency for overseas travel, shopping and study each year, unless they have been able to offshore their monies through unofficial channels.

Restrictions facing foreign institutional investors

For more than the past 10 years, foreign institutional investors have only been able to purchase mainland Chinese A-shares and other qualified Renminbi-denominated securities through China's Qualified Foreign Institutional Investor (QFII) program. The program requires qualified foreign institutional investors to obtain an approval from mainland China's securities regulator to buy into mainland China's securities under a given quota issued by mainland China's foreign exchange regulator. The program imposes three-month lock-up periods and repatriation restrictions, preventing qualified foreign investors from making frequent transactions. As at the end of March 2015, a total $US72.1 billion of QFII quotas had been assigned, representing just over 1% of China's $US6.3 trillion stock market. A separate Renminbi Qualified Foreign Institutional Investor (RQFII) program provides a channel for Chinese yuan held outside of mainland China to be invested in mainland China's securities.

Restrictions facing foreign individual investors

Foreign individual investors have been limited to investing in mainland Chinese A-shares and other qualified Renminbi-denominated securities through products offered by QFII licence holders.

Harbour in the tempest

Put simply, as a consequence of these controls, foreign investors have limited exposure to mainland China's stocks and bonds, and mainland Chinese investors are generally restricted to investing in domestic assets. Many commentators have attributed China's ability to endure the Asian financial crisis of the late 1990s and the global financial crisis of the late 2000s to China's capital and foreign exchange controls. More recently, experts have said that such controls have saved China from the turmoil that hit other emerging markets at the start of this year. But things are changing.

Time for reforms

In March 2015, Chinese Premier Li Keqiang pledged to press on with "wrist slashing" reforms, while mainland China's central bank governor has promised to further open financial borders in the quest to gain reserve status for the nation's currency. Later this year the International Monetary Fund's has its once-in-five-year review of whether to include the Chinese yuan in its Special Drawing Rights (SDRs) international foreign exchange reserve assets. And all the while the voices in mainland China seeking a more open, market-driven economy grow louder.

Loosening the controls will promote investment flows in and out of mainland China, and offer mainland Chinese savers new options beyond the extraordinarily expensive property market and shadow banking sector. However, the risk is that it leads to unwanted swings in asset prices as speculative capital floods in and out of mainland China.

The Chinese government's easy-does-it approach to opening valves in its capital market's sea wall is picking up unprecedented speed.

Developments in Qualified Domestic Limited Partner Program (QDLP)

In recent days, it has been reported that mainland China's fledgling Qualified Domestic Limited Partner Program will be expanded to allow select international fund managers (including some of the world's largest asset managers and hedge funds) to raise billions of dollars from Chinese investors.

Mutual recognition of funds

On 22 May 2015, mainland China's securities regulator announced that a long-awaited scheme to allow funds domiciled in Hong Kong and mainland China to be sold in each others' market will be launched on 1 July 2015, in a move to facilitate cross-border investment. It has been reported that the initial quota for mutual fund recognition will be 300 billion yuan ($63.2 billion) in each direction. Funds will need to have been established for at least one year and, based on that criteria, around 100 Hong Kong-based and 850 mainland Chinese funds will qualify.

Pilot of Qualified Domestic Individual Investor program (QDII2)

On 18 May 2015, China's State Council issued a notice regarding reform of China's economic system. Among other things, the notice stated that the central government will soon launch a pilot project in respect of QDII2, under which mainland Chinese individual investors will be allowed to invest directly in financial products outside of mainland China. To date, offerors of certain foreign financial products have had to either "distribute" such products through existing QDII licence holders or ensure that any invitation to offer, offer, acceptance and sales documentation in respect of such products is: (i) sent to mainland Chinese individual investors with funds offshore to mainland China; (ii) sent to an offshore address outside of mainland China; and (iii) is signed offshore to mainland China. Given the obstacles, most Chinese individual investors have preferred to invest in mainland China's burgeoning property market.

It has been reported that the new QDII2 pilot scheme will be launched in six cities: Shanghai, Tianjin, Chongqing, Wuhan, Shenzhen and Wenzhou. It will potentially unleash billions of dollars in mainland Chinese savings on global stock and bond markets. Individuals with at least 1 million yuan ($210,000) of financial assets can apply to join.

Expansion of QFII investment quota

In March 2015, it was reported that mainland China's securities regulator had removed the $US1 billion investment quota (which had been in place since 2009) for overseas fund management firms that want to invest in mainland China under the QFII regime.

Launch of Qualified Domestic Investment Enterprise (QDIE) scheme

This followed the launch of the QDIE scheme in February 2015, which enables mainland asset managers registered in the city of Shenzhen to invest in overseas financial instruments. The eight domestic managers that have signed up, including China Southern Asset Management, China Merchants Fund, Great Wall Securities and China Credit Trust, can now raise up to $US1 billion between them from mainland Chinese investors for investment in overseas financial instruments.

Shanghai-Hong Kong stock connect program

These latest steps to deregulate China's capital markets came after the launch of the Shanghai-Hong Kong stock connect last November. In terms of outbound investment by mainland Chinese individual investors, the Shanghai-Hong Kong stock connect program is narrower in scope than the proposed QDII2 pilot scheme in that it is focused on guiding mainland Chinese investors into Hong Kong-listed stocks related to mainland China and offers little opportunity for risk diversification, while keeping a tight rein on the risk of capital flight.

Before the program was introduced, individual investors, in Hong Kong or from overseas, could only participate indirectly in mainland China's securities markets through certain investment products such as QFII funds, RQFII funds and RQFII A-Share Exchange Traded Funds. Now that the program has been launched, the northbound trading link of the program allows Hong Kong and foreign investors to invest directly in eligible A-shares listed on the Shanghai Stock Exchange through Hong Kong brokerage accounts. Further, the southbound trading link of the program enables mainland Chinese investors (including individual investors) to trade eligible Hong Kong-listed stocks directly though local brokerage accounts. The Shenzhen Stock Exchange is expected to launch a similar program this year.

Expansion of China's debt capital market

In other recently developments, mainland China's central bank has reportedly commented that rules will be relaxed for mainland Chinese companies to sell bonds and stocks in overseas markets, and for overseas companies to sell stocks or bonds in mainland Chinese markets. It is understood that fundraising both ways will be in Chinese yuan or US dollars. Mainland China has plenty of incentives to grow its debt capital market. As experts have explained, a well-developed bond market would provide long-term investments with fixed returns to an ageing population, give the growing middle class an additional investment vehicle with which to diversify their portfolio, and create a less costly but more efficient channel of funding for mainland Chinese companies.

Australia's response to China's changing place in the financial world

China is the world's largest trading nation and, according to many experts, it will soon be its largest economy. In 2013, its share of global GDP as well as global trade was 12%, but it holds a much smaller percentage of global holdings of overseas assets and liabilities. Mainland China had an estimated 145 trillion yuan ($30.5 trillion) in total investable assets as of the end of 2013, which is expected to grow to 260 trillion yuan ($54.5 trillion) by 2020. As mainland China gradually removes chunks of the sea wall separating its capital markets from the rest of the world, we will see much greater inflows and outflows of investment capital. Australia's financial institutions, regulators and investors will need to be ready for the surge.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Carl Hinze
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions