The China Banking and Insurance Regulatory Commission (CBIRC) gave final approval for French asset manager Amundi and BOC Wealth Management (WM), the subsidiary of Bank of China, to establish its Shanghai-based asset management joint-venture.
The entity, called Huihua Wealth Management, is 55% owned by Amundi and 45% owned by BOC WM, and plans to open for business in October, according to a statement by Bank of China on Friday.
The CBRIC granted the venture initial approval in December 2019, and it is the first joint-venture company under the CBIRC-regulated wealth management framework introduced last year that has a foreign shareholder holding a majority stake.
Subsequently, an alliance of Blackrock and Temasek also gained the same-stage approval to set up a joint venture with the wealth management subsidiary of China Construction Bank last month.
In July 2019, the CBRIC announced 11 measures to encourage overseas participation in the country’s financial markets. Included were foreign control of domestic wealth management companies (WMCs) and the removal of foreign ownership limits for fund management companies in 2020.
Many of China’s banks established WMC subsidiaries, in response to regulatory reforms in December 2018 — including Bank of China, which set up a WMC on 1 July 2019 with a registered capital of RMB 10bn ($1.4bn).
Commercial banks were told to break implicit guarantees for principal and interest payments on wealth management products (WMP), effectively precluding their wealth management businesses from future bailouts. The WMP industry has been a foundation of China’s shadow banking system and a major concern of regulators keen to dampen systemic financial risks.
On the other hand, the CBIRC also relaxed the investment criteria of bank wealth management subsidiaries, allowing them to invest directly in stocks, whereas banks were previously forbidden from doing so.
The relaxation of ownership rules last year created opportunities for western firms, including Amundi, Europe’s biggest asset manager, whose website states had global AUM of €1.65trn ($1.92trn) at the end of 2019.
Ownership and control
However, Peter Alexander, managing director at Z-Ben Advisors, questions the definition of “control” in a China context.
“Control most certainly isn’t 60% equity ownership, especially in a Chinese partnership,’ he said.
“It is the fallacy of control that is present, with the Chinese side in a position to effectively limit any activities the foreign party ‘management’ undertakes,” said Alexander, whose Shanghai-based consultancy has analysed and commented on China’s evolving asset management industry for the past 15 years.
“This can be achieved either through in place legal documents the parties have entered into, or – more likely – through influence applied throughout the organisation,” he said.
In fact, “none of the announced partnerships even needed to be created as an equity joint venture,” according to Alexander.
“The parties involved could have – and should have – entered into a contractual agreement, which is what JP Morgan Asset Management has done with China Merchants Bank Wealth Management,” he said.
In December last year, JP Morgan AM formed a strategic partnership with the wealth management subsidiary of China Merchants Bank to act as the “preferred product provider” to CMB Wealth Management (CMBWM), offering access to its offshore and onshore funds.
