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China officially ends foreign ownership limits

Restrictions on foreign ownership of domestic fund management companies have officially been lifted, according to a statement from China Securities Regulatory Commission.

The investment proportion restrictions for foreign security companies, fund management companies and futures companies have been officially lifted, and companies can start applying for up to 100% ownership of domestic firms in 2020, according to an announcement by the CSRC.

The regulator did not give a specific date to begin the application process.

The move had been expected. Earlier this month, China premier Li Keqiang said that the abolition of ownership restrictions for foreign investors in the financial sector will happen in 2020, which was a year earlier than previously scheduled.

In April last year, the CSRC relaxed joint venture ownership limits for foreign asset managers, allowing them to apply for up to 51% ownership in a Chinese fund management firm. In addition, the regulator said it intended to remove the 51% cap by 2021, allowing foreign firms 100% ownership of domestic asset managers.

“This move is an important measure taken by the CSRC to implement the decisions and arrangements from the party and the state council to deepen the financial supply-side structural reform, and further open up the financial industry,” the regulator said in the statement.

Peter Alexander, managing director of Z-Ben Advisors, had a tempered response to the official announcement in a Linkedin comment.

“Moving forward there are two critical factors interested global managers will need to fully recognize and address,” he wrote.

“First is an honest determination of how well prepared to move on 100% a given asset manager is at present. While there has been much talk about ‘a deep commitment to China’, we’ve seen only a small number (generously talking one hand here) of firms putting real pieces into place,” he said.

“Second is understanding what is meant by the announcement. Moving from application to final CSRC operational approval will take far more time than will be properly planned for.

“Experience has taught us that there will be unforeseen, asymmetrical obstacles that will upend even the most carefully crafted plan,” Alexander added.

According to the People’s Bank of China website, China now also officially allows foreign entities to conduct credit rating business in China, and they can rate all types of bonds in the inter-bank bond market and the bourse bond market. 

S&P’s Shanghai office has already rated its first onshore bond and Fitch Ratings has applied for approval to operate onshore as a wholly-owned foreign entity, FSA reported earlier.

China is also encouraging foreign financial institutions to invest in financial subsidiaries of commercial banks, the PBOC added.

Part of the Mark Allen Group.