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Brokers and Translators Everywhere Rejoice

The world’s financial community is getting a gift from the Chinese government.

China is once again opening the flood gates with its decision to start a second Qualified Domestic Institutional Investor (or QDII2) program. The scheme will be launched in several cities across mainland China, and could potentially unshackle billions of dollars chasing yield or international safe haven assets such as real estate.

The first incarnation of the program gave Chinese institutions in Special Economic Zones (SEZs)—and high net worth investors tied to those institutions—the ability to invest in Hong Kong stock markets. QDII2 differs as it will invite anyone with a net worth of at least 1 million Chinese yuan (US$160,000) to join, and allow those investors to legally invest in such overseas markets as New York and London.

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Despite its potential, the first QDII program was really not all that popular. It was mainly put into place to allow speculators to invest in Hong Kong stock markets (ultimately, China’s markets), which clearly lacked diversification or any real exposure to international markets. Of course, as with most everything else in China, there were loopholes, and those loopholes were exploited (as any real estate broker in California or Australia can probably attest to).

Rather than a genuine gift to the world, or its citizens, this is more closely related to Beijing’s desire to deregulate and to prepare for the inevitability of the Chinese yuan (CNY) becoming a freely convertible currency in the very near future. Moreover, it is similarly tied to the eventuality of the CNY becoming part of the basket of currencies that makes up the International Monetary Fund (IMF)’s own “currency,” the Special Drawing Rights (SDR).

Currently, the SDR is made up of U.S. dollars at 41.9%, euro at 37.4%, pound sterling at 11.3%, and Japanese yen at 9.4%. What is especially interesting is how these will be weighted in the future if the world’s largest economy is allowed to join. It’s actually rather shocking that the IMF have ignored doing so for this long.

Although Reuters did not offer up a time frame for when to expect this Chinese middle-class tsunami of new investment capital to hit the markets, it is reportedly coming quite soon.

So if you’re a broker, you might want to consider contacting your local Chinese translators and get all your PowerPoints, private placement memorandums, prospectuses, brochures, and agreements translated now before it’s too late. (Tongue firmly planted in cheek… or maybe not.)

H/T: Reuters