Qualified Domestic Institutional Investors (QDII) are Chinese institutional investors – meaning companies or organizations – that have met and continue to meet the qualifications to invest in foreign securities markets. Initially introduced to China in 2006, the QDII program allows the investment of five types of Chinese entities abroad: insurance companies, banks, trust companies, funds, and securities firms.

These entities must first apply and be approved by the State Administration of Foreign Exchange (SAFE) prior to making investments, and have a specific quota amount determined by SAFE as part of the approval process. If approved, entities may invest in both themselves and on behalf of retail clients in the overseas markets in terms of equities, fixed income and derivatives.

The purpose of the QDII system is to strengthen the Chinese economy and promote its internationalization. It gives Chinese firms access to the opportunities and returns that foreign investments may provide, including the ability to diversify their investment portfolios and achieve higher returns from long-term investments in foreign markets. Meanwhile, it may also attract more foreign investment into China, helping to further stimulate the Chinese economy.

The QDII system is regulated by SAFE via the Foreign Exchange Administration Act, ensuring the accountability and transparency of the investment process. This includes the limitation of the permissible foreign investment portfolio and the maintenance of an appropriate level of risk control measures. Both of these are important for continued confidence in the QDII system.

Overall, the QDII system has been largely successful since its introduction and is an important avenue for foreign investment for Chinese entities. In addition to the investment and diversification opportunities it provides, it also serves as a tool to increase economic development and strengthen both domestic and foreign markets.