While the $206-billion China Investment Corporation, China’s sovereign wealth fund launched last June, is also expected to invest in Indian stocks soon, the first fund to make the cut is one of the most successful domestic players in the Chinese funds market, the China International Fund Management (CIFM) company headquartered in Shanghai’s Pudong area.

CIFM may not represent China’s overall sovereign wealth, but it is run by the finance arm of the Shanghai Municipal government and China’s third largest investment firm, Shanghai International Trust and Investment Company, in partnership with US fund giant JP Morgan Asset Management. CIFM was one of the first few fund houses allowed to invest in international markets after Chinese authorities relaxed rules that restricted overseas investments in June 2007.

Last October, when CIFM launched the first-ever Chinese fund to invest in Asia-Pacific markets (excluding Japan), 2 million domestic investors poured in their savings, with applications worth 100 billion yuan on the very first day. Despite the relatively high minimum subscription amount of 10,000 yuan ($1330) per application, the record response forced the company to close issue of shares in just two days instead of the five days originally envisaged.

Though China’s equity markets have been delivering scorching returns (160 per cent in 2007), locals clearly wanted to partake in the larger Asian growth story — the CIFM fund is to be invested in South Korea (commenced last month), Hong Kong, India and Singapore, among other markets.

Though China’s foreign exchange authority has only allowed investments of $19.5 billion by overseas funds set up by players like CIFM for now, the investment quota is expected to go up to as much as $70 billion in 2008.

The Qualified Domestic Institutional Investors (QDII) scheme, launched in 2006 to ease the appreciation pressure on the Yuan due to surging forex reserves, originally allowed investments by locals in Hong Kong securities. But it has been opened up further in recent months — apart from Asian markets, these funds can now also invest in securities of British and US corporations (an agreement was reached late December), even as efforts are on to tap the capital markets of Germany and Japan.