CCB, ICBC launch WM subsidiaries in China

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The new wealth management subsidiaries may provide business opportunities for foreign players that have a private fund management licence in China.

China Construction Bank (CCB) and Industrial and Commercial Bank of China (ICBC) have received a go signal to launch their WMP subsidiaries in China, according to a statement from the China Banking and Insurance Regulatory Commission (CBIRC).

The two banks are the first to receive regulatory approval to officially open their wealth management subsidiaries, according to Miao Hui, Singapore-based senior analyst at research firm Cerulli Associates.

Five other banks, including Bank of China, Agricultural Bank of China, China Merchants Bank and China Everbright Bank, have already received regulatory approval to put up a wealth management subsidiary, but have not yet completed the setup process, she added.

The CBIRC said that the other banks are now “stepping up preparations” for their official opening.

In total, there are around 30 banks that have submitted applications to set up a wealth management subsidiary, according to Miao.

The launch of the CCB and ICBC’s wealth management subsidiaries comes after Chinese regulators finalised rules in December that allow domestic banks to set up subsidiaries that can manage wealth management products (WMPs).

WMPs in China invest in products issued by trust companies, securities firms and subsidiaries of fund houses, and funnel the proceeds into loans for corporations. As at the end of 2017, the size of the WMP market was around $11.5trn, according to an Oliver Wyman report.

Unlike the WMPs run by banks, the new WMPs to be managed by bank subsidiaries will have no minimum investment. In addition, the new stand-alone units can directly invest in stocks, plus can be distributed through channels other than banks.

“This makes WMPs launched by subsidiaries very similar to mutual fund products, and their investment scope is even wider to include non-standard assets,” Miao said previously.

Opportunity for PFM managers?

Given that the new WMPs are like mutual funds and are under the “private category”, they may rival the private fund management (PFM) products managed by both domestic and foreign managers.

However, industry sources believe that the new wealth management subsidiaries will provide business opportunities for foreign players.

For example, Mark Li, Fullerton Fund Management’s Shanghai-based general manager for its wholly-foreign owned enterprise (WFOE) and head of China sales, said previously that there will be more collaboration between these subsidiaries and foreign PFMs.

“The wealth management subsidiaries need time to build out their investment capability. So at the moment, [I expect that] they will work with external managers.”

Cerulli’s Miao shares the same sentiment.

“Collaboration will be more than competition between banks and PFMs in the near future,” she said.

She explained that under the guidelines for WMP subsidiaries, PFMs are allowed to provide advisory services to WMPs, while WMPs that are only available to qualified investors can invest directly into private funds.

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