China's qualified foreign institutional investor (QFII) scheme is quickly shifting from a business dominated by global brokers to one where both foreign and domestic fund management companies are making inroads.

Sources at Chinese fund management companies report that two foreign fund managers, including Invesco, have submitted applications for QFII licences to the China Securities Regulatory Commission. The CSRC is keen to get global fund houses directly involved in the A-share market, and its green light is expected in the second quarter.

To date, only brokers such as Goldman Sachs and Morgan Stanley have applied for the QFII license, which involves a minimum investment of $50 million, with quotas as high as $300 million. They must be introduced via a licensed QFII custodian - the ranks include both the big domestic commercial banks as well as foreigners such as Citibank, HSBC and Standard Chartered Bank - and execute trades via a single domestic broker. Some QFII licensees have established funds through which international fund houses could take a stake, but that leaves fund managers passive riders.

Invesco officials declined to comment. Market participants outline a likely scenario for the firm, which is to utilize its Shenzhen-based joint venture company, Invesco Great Wall Fund Management, to actually run the money. Presumably Great Wall Securities would act as its broker. If so, this would give the JV a much-needed boost to its assets under management, and create a model for other fund management JVs, all of which are competing against well-entrenched domestic rivals. But the other foreigner seeking a QFII licence is said to not have a domestic presence, which opens the A-share market even futher.

Those domestic rivals are stirring as well. Boshi Fund Management and China Merchants Fund Management (a JV between China Merchants Securities and ING Investment Management) have recently won QFII licence mandates for their money market funds.

CMFM's executive deputy general manager Zhan Long says the appeal for QFIIs is that a domestic cash fund can provide 1.9% annual return, versus, say, 0.6% from a deposit at a custodian bank - with almost equal liquidity.

But domestic fund managers are now going a step beyond serving as a mere parking space for foreign portfolio money. Boshi is aggressively marketing itself to foreign players for its fund management skills, and reports what it terms "significant" asset flows into its equity fund. "One of our QFII clients has promised to increase its investment in our equities fund by 200%," says Zhang Ning, chief economist and managing director at Boshi. Likewise, Chang Sheng Fund Management in Beijing has reportedly won QFII mandates for its fixed-income fund.