Li told the World Economic Forum in Dalian this week that the ownership limits would be lifted in “securities, future and life insurance” to demonstrate that China will continue to open up its markets to international participants, according to a Reuters report.
JP Morgan Chase, HSBC, Nomura and UBS already have majority stakes in domestic securities ventures after changes to Chinese regulations in 2017, although their holdings are capped at 51%. Other banks, including Morgan Stanley, have apparently been looking to set up similar enterprises in China.
However, it is unclear whether Li’s statement covers the asset management industry, where foreign firms have been energetically seeking ways to tap into China’s rapidly growing pool of investible assets, which is set to leap to $9.3trn from $5.3trn by 2023, according to a recent report by Morgan Stanley and Oliver Wyman.
Having a stake in a Chinese fund management firm allows foreign players to participate in the country’s RMB 13.9trn ($2trn) retail market.
Last month, Yi Gang, governor of the People’s Bank of China, told the Lujiazui Forum in Shanghai that the central bank would support a pilot programme based in Shanghai to remove the foreign ownership limit in firms providing securities and also fund management services, according to a previous report by Reuters.
Path to full control
In April last year, China’s securities regulator 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.
Most recently, it was reported that JP Morgan Asset Management may become the first foreign firm to own a majority stake in a Chinese asset manager, after Shanghai International Trust said it would auction 2% of its holding in China International Fund Management, the joint venture between the two firms. A sale to the US asset manager would lift its stake to 51%.
“China’s announcement to bring forward the removal of foreign ownership limits on domestic securities companies to 2020 is a welcome development and will likely continue to help attract overseas capital into China’s stock and bond markets,” a JPM AM spokeswoman told FSA.
“We have previously announced our intent and desire to increase our current joint venture stake in China International Fund Management to a majority interest. We are pleased to be working closely with our joint venture partners as we continue to advance on our plans to expand our China onshore capabilities,” she said.
Invesco has also moved towards majority control of its Shenzhen-based Invesco Great Wall Fund Management joint venture, and Morgan Stanley and HSBC are also rumoured to be preparing to assume control over their joint ventures.
An Invesco spokesman told FSA that “this latest development is another positive step for participants in Chinese capital markets, and one which will directly benefit Chinese investors. We welcome this decision and fully support accelerated efforts to open up and liberalise China’s financial system”.
In fact, over 20 foreign firms have joint ventures with China fund managers, and nine have 49% stakes in their enterprises. In April 2018, Morgan Stanley won an auction to buy an additional 5.5% stake to 43% in its joint venture, in a deal that made it the top shareholder of Morgan Stanley Huaxin Fund Management.
Around 40 overseas asset managers have set up investment management wholly foreign-owned enterprises (WFOEs) which, depending on the type of licence they received, allows them to raise money from domestic investors to invest offshore, with a qualified domestic limited partner licence, or sell a product invested in onshore assets to a maximum of 200 domestic qualified investors, with a private fund management (PFM) licence.
However, this segment is also becoming less restrictive.
Chinese regulators had previously said that foreign managers holding a PFM licence might soon be able to convert their businesses into a public fund management company, which would permit them to distribute to retail investors.
Now it appears a conversion is unnecessary because foreign firms can now simply buy a majority stake in a public fund management company.
Moves by the China Banking and Insurance Regulatory Commission to treat so-called cash-management products (CMP) similar to money market funds might expand the market even more for conventional asset managers. Bloomberg reported that stricter rules on pricing and investment duration will be imposed on CMPs, which make up a large proportion of the wealth management products that form China’s shadow banking system.