Wednesday, February 18, 2009

The joys of infrastructure...

...and the advantage a vigorous legal system conveys upon a nation.

Ricardian comparative advantage applies to intangibles as well. Where would you like your standing to be?

By staff reporters Fan Junli and Lu Yanzheng
From Caijing Magazine

Chinese overseas investors who tallied huge losses in recent months have sued London-based Standard Chartered Bank (China) Ltd. in its position as the largest provider of Qualified Domestic Institutional Investor (QDII) investment products.

Meanwhile, the China Banking Regulatory Commission (CBRC) has indicated authorities are reconsidering standards for access to QDII products, some of whose investors have watched their dream deals turn into nightmares.

Sources close to the regulator said banks sued by Chinese investors would face restrictions over disputed investment products.

Disgruntled investors claim Standard Chartered failed to sufficiently disclose investment risks tied to its products. They also charged bank salespeople misled investors, and that its investor complaint mechanism malfunctioned.

QDII investors were hard hit by last year’s Wall Street meltdown. Original investments declined for all 49 of Standard Charter’s current QDII products, with 32 losing more than 30 percent of principal and 10 products losing more than 50 percent.

Standard Chartered investors are not alone. A research institute affiliated with the Southwestern University of Finance and Economics in Chengdu showed that, as of December 19, investors lost principal on 63 types of QDII products tied to foreign banks, while 13 have lost 50 percent of their principal.

Unhappy Investors

CBRC called QDII investing an “overseas wealth management business” when it was unveiled in April 2006. Afterward, its investment scope quickly expanded, allowing Chinese companies and individuals to invest in foreign financial markets through commercial Chinese banks.

But the lawsuits have forced banks to reflect on problems with the design, sales and risk management of QDII products. Meanwhile, banking regulators and individual investors are taking a second look at financial innovations.

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