AnJie Insights│International Funds Enter China

Positive efforts by Chinese President Xi Jinping to boost the markets and service industries are seeing opportunities open up for international investment houses to provide their products directly to Chinese investors in the Mainland.

In particular, an industry clean-up by the Asset Management Association of China (AMAC) led to an announcement last June that it would welcome overseas applications for private fund management operations. Up until recently, Western financial institutions wishing to access the private wealth industry in China by running local operations were restricted to being minority partners in locally controlled joint ventures. However, recent approvals of applications to launch onshore operations as Wholly Foreign Owned Enterprises (WFOEs) has seen a spate of licenses granted to major international operators such as Fidelity International, Vanguard and Manulife, amongst others.[1] This paves the way for successful applicants to fully control private fund management operations on the ground in Mainland China, at the same time as maintaining control over their own proprietary technology and procedures. While restrictions still remain on full access to the fast developing retail market, first mover advantages ahead of a further opening up should not be underestimated.

The private wealth management industry in China is booming, and the opportunity exists for overseas fund managers to convert pre-existing offshore products into those that can be readily sold to investors in the Mainland retail market. According to AMAC , assets committed to China’s private funds doubled last year to RMB 10.24 trillion (USD 1.54 trillion) and grew another 7% in the first month of this year. To put this into perspective, the UK, as the largest asset management centre in Europe, had GBP 827 billion (USD 1.07 trillion) of assets being managed in UK authorized funds at the end of 2014.[2] Despite this, retail funds in China only represent around 10% of China’s asset management industry as a whole, and amidst the shorter-term investment horizons of many of its investors,[3] there is room for this sector of the industry to grow. In many cases, a new generation of investors, including those educated overseas, are more familiar with the dynamics and practices of other markets and subsequently more open to western style financial products.[4] And in addition to this, an increase in such retail fund products promises to provide smaller investors in the Mainland with easier means to access professionally managed and diversified portfolios of international equities, bonds and other securities.