The first foreign-funded bank to obtain public fund QDII custody qualification, a trillion-yuan market ecosystem welcomes a new variable

This newspaper (chinatimes.net.cn) reporter Hu Jinhua, Shanghai

For asset management products, especially QDII custodial services, foreign banks have achieved a historic breakthrough in the domestic market.

Recently, Standard Chartered Bank (China) Limited (hereinafter “Standard Chartered China”) announced that it will provide custodial services for the Guotai Haitong Asset Management’s Guotai Haitong Hong Kong Stock Advantage Select Equity Initiated Securities Investment Fund. As a result, Standard Chartered China becomes the first foreign bank to custody public offering QDII funds and initiated funds.

“This breakthrough occurs against the backdrop of rapid expansion in the QDII market. By 2026, the scale of domestic QDII funds will officially reach one trillion yuan, amounting to 1.03 trillion yuan. Fund custody business itself has low profit margins, but for foreign banks, it can generate opportunities such as attracting institutional account openings, FOFs, and other services, which are beneficial for diversifying institutional business,” a relevant person in charge of a state-owned bank’s fund custody department told Huaxia Times on March 20.

Market analysts also believe that with Standard Chartered China’s entry, many other foreign banks with securities investment fund custody licenses, such as BNP Paribas, HSBC, Deutsche Bank, and Citibank, are also expected to enter this track.

Foreign Banks Officially Enter the Market

Diversified asset and wealth management strategies are increasingly making foreign institutions pay attention to new opportunities hidden in cross-border investment markets.

At the eighth member meeting of the China Securities Industry Association last December, CSRC Chairman Wu Qing pointed out that currently, stocks, funds, and other assets account for about 15% of Chinese residents’ assets. The demand and potential for asset management and wealth management services are huge, and the concepts of diversification and multi-asset allocation are becoming more popular. Due to its cross-border investment features, QDII funds show significant complexity and uniqueness in custody needs compared to domestic funds, including coordination between domestic and foreign custodians, settlement across time zones and markets, multi-currency transactions, investment supervision, accounting, and regulatory reporting.

“Through this business implementation, Standard Chartered China is extending its service solutions practiced in other QDII products into the public offering QDII fund sector. The huge development potential of China’s wealth management market brings broad opportunities for foreign financial institutions. In the future, we will position ourselves as a super connector, deeply cultivating the Chinese wealth management market, supporting high-level opening of China’s capital markets, and helping domestic investors better allocate global assets,” said Lu Jing, President and Vice Chairman of Standard Chartered China.

Additionally, Guotai Haitong Asset Management also told Huaxia Times that this cooperation with Standard Chartered China is not only an innovation in products but also an important practice to serve the country’s high-level financial opening strategy and promote two-way capital flows. Both parties are actively implementing inclusive finance through public fund products to meet investors’ cross-border investment needs.

“As a leading asset management firm managing over 700 billion yuan, partnering with Standard Chartered China to launch the first public offering QDII product custodied and distributed by a foreign bank is a significant step in cross-border development of public funds,” Guotai Haitong Asset Management further stated.

Some foreign bank executives also revealed to this reporter that custodial services are a business many foreign banks want to develop, and domestic fund custody is a very important part of it. The number of institutions involved in foreign capital entering the domestic fund business will only increase, and they are preparing in advance.

In their view, Standard Chartered is not an isolated case. Foreign banks are collectively laying out custody services, especially those with qualified licenses, to seize the first-mover advantage. Currently, besides Standard Chartered China, BNP Paribas, Citibank China, HSBC China, and Deutsche Bank China are the four foreign banks holding securities investment fund custody licenses.

“Custody has always been a core strategic sector for foreign banks in China, and domestic public fund custody is a highly strategic and valuable track. As financial opening continues to deepen, the entry barriers for foreign institutions to participate in domestic fund business are continuously lowering, and market expansion is an inevitable trend. In the future, domestic investors using public funds to allocate to Hong Kong stocks, U.S. stocks, and even global markets will enjoy more efficient cross-border settlement, more professional investment supervision, and more transparent asset accounting. For the entire industry, this is an upgrade of service capabilities and an opening of the market ecosystem—foreign banks’ global resources will provide a more solid guarantee for Chinese investors’ global allocation,” the person added.

Advantages of Foreign Banks’ Custody of QDII

In fund operations, the custodian is responsible for safekeeping all fund assets, executing investment instructions from the fund manager, supervising the fund manager’s investment activities, and reviewing the net asset value and financial statements prepared by the fund manager. This means that institutions qualified as fund custodians have stronger business ties with fund companies than those without such qualifications.

So, what are the advantages for institutional investors in foreign banks custody of QDII funds?

“Foreign banks’ custody of QDII funds demonstrates a unique value different from traditional Chinese custodians. This difference is rooted in their global network layout, cross-border service experience, and integrated financial solutions. First, foreign banks have a significant first-mover advantage in global custody networks and settlement efficiency. Compared to Chinese banks mainly relying on Stock Connect and Asia-Pacific clearing systems, HSBC, Standard Chartered, Citibank, and other foreign banks have direct access to local central securities depositories in developed markets like Europe and the U.S., with local custody branches. This deep network means that if the investment targets involve U.S. or European stocks, the custody of QDII funds can shorten settlement cycles or even achieve same-day delivery, reducing pre-clearance risks and capital occupation costs. Especially when handling high-frequency trading or large redemptions, the real-time responsiveness of the global network can effectively alleviate liquidity management pressures caused by cross-border time differences, which is difficult for Chinese banks relying on agency models,” said Liang Bin (pseudonym), a partner at a cross-border investment private equity firm in Shanghai.

Liang Bin also revealed that their institution has established fund custody services with foreign banks. Due to the involvement of multiple currencies such as USD, HKD, EUR, and JPY in QDII funds, foreign banks leverage offshore RMB business and global foreign exchange trading networks to provide more competitive real-time exchange rate quotes and CNH liquidity support.

“In terms of currency hedging, foreign banks can coordinate offshore foreign exchange swaps, forwards, and options markets to provide cross-currency fund pool management and natural hedging solutions, reducing FX gains and losses’ impact on fund NAV. In contrast, Chinese banks, while having advantages in onshore RMB derivatives, still have room for improvement in offshore market depth and multi-currency instant exchange efficiency,” Liang Bin admitted.

It is noteworthy that the official entry of foreign banks into QDII custody also reflects the long-term positive outlook of overseas funds on Hong Kong stock market allocations.

“From an investment perspective, with the breakthrough of foreign banks’ custody, cross-border products have once again become a market focus. However, investors will notice that this trillion-yuan breakthrough in cross-border products has significant structural features. Hong Kong stock technology, innovative pharmaceuticals, oil and gas products have become the main drivers of scale growth, reflecting investors’ preference for high-elasticity, high-transparency index tools,” said a head of an investment institution focused on cross-border asset allocation.

This person pointed out that, from a allocation logic, the diversification function of cross-border ETFs is increasingly prominent amid rising global macro uncertainties. Especially, Hong Kong Stock Connect technology ETFs are driven by the dual forces of increased southbound pricing power and AI narratives, with valuation recovery potential still present. From a capital perspective, southbound funds are undergoing a historic shift from “peripheral participants” to “core pricing power.” Since the beginning of the year, net inflows have exceeded 200 billion HKD, with a single-day net purchase record of 37.2 billion HKD. Domestic holdings of Hong Kong Stock Connect technology stocks have already surpassed 25% of the circulating market value. This continuous “northbound water southbound” flow not only provides ample liquidity support but also reshapes valuation logic.

CITIC Securities’ latest research report pointed out that since the fourth quarter last year, the highly anticipated Hong Kong tech sector has been experiencing a bottoming process as expected, but the pessimistic downward trend has now shown signs of stabilization. As tech giants’ efforts in AI commercialization begin to pay off, with a proliferation of large models competing, they are accumulating momentum for future profit recovery. Meanwhile, the proportion of overseas cornerstone investors in Hong Kong IPOs is rebounding, indicating that long-term overseas capital is returning to the market, injecting new vitality.

Editor: Xu Yunqian Chief Editor: Gong Peijia