The partnership, which will also include product development, knowledge sharing and collaboration on technology, follows the launch last month of CMBWM, China Merchant Bank’s (CMB) asset management subsidiary, according to a joint statement by CMB and JPMAM.
“Preferred doesn’t mean exclusive, [but] the strategic partnership is more comprehensive than product distribution,” a spokeswoman at the US asset manager told FSA.
“We’ll work together in developing new overseas and cross-border products for CMB clients,” she added.
In August, JPMAM became the first foreign company to hold a majority stake in a Chinese mutual fund business, when it paid $35m for an additional 2% stake in its onshore joint venture, China International Fund Management (CIFM), which it had originally set-up with Shanghai International Trust in 2004.
“For domestic products our onshore mutual fund joint-venture [CIFM] will have the opportunity to act as an onshore fund manager advisor to CMB and CMB could also distribute CIFM products,” said the spokeswoman.
CIFM offers public mutual funds, including money market funds, equities and fixed income products, to onshore retail and professional investors, and had total client AUM of about RMB 129.3bn ($18.29bn) as of 30 September 2019, she added.
“[The partnership with CMB] is complementary to our existing onshore business and is aligned to our long-term commitment to investing in the growth of China’s asset management industry,” said Dan Watkins, JPMAM’s chief executive officer for Asia-Pacific, in a statement.
CMB and JPMAM will also explore a FinTech partnership, but no further details are currently available.
Many of China’s banks are establishing wealth management subsidiaries in response to recent regulatory reforms, creating opportunities for western asset managers.
In July, Shanghai-based Hywin Wealth Management and Liechtenstein-based VP Bank signed a memorandum of understanding to establish a Hong Kong-based collaboration platform to meet the demand of wealthy Chinese for onshore and offshore wealth management services.
However, the partnership between CMB and JPMAM is the first of its type to be publicly announced.
“In the initial stage of this strategic partnership, we will work with CMB and JPMAM on knowledge sharing, product access and product development,” said Wang Tao, chief executive officer of CMBWM, in a statement.
Regulatory initiatives
In December 2018, regulators instructed commercial banks to break implicit guarantees for principal and interest payments on wealth management products (WMP), effectively ring-fencing their wealth management businesses from future bailouts.
The $4trn bank 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 China Banking and Insurance Regulatory Commission (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.
CBIRC first granted approval for the wealth management subsidiaries of the six large state-owned banks — Bank of China (BOC), Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), Bank of Communications, Agricultural Bank of China and the Postal Saving Bank of China.
The wealth management units of CCB and ICBC became the first to open for business in July, while BOC has gained clearance to start operations, according to Caixin, a Beijing-based media group, citing CBIRC as the source.
Most recently, the CBIRC released supplementary draft rules on the net capital of commercial banks’ wealth management units in September. Their net capital should be no less than RMB 500m or 40% of the units’ net assets, and net capital of the units should also be no less than 100% of their risk capital, according to the CBIRC website.
At least 31 banks have disclosed plans to set up wealth management subsidiaries, according to an Ernst & Young report. Bank of Hangzhou and Bank of Ningbo, both based in the eastern coastal province of Zhejiang, became the first city commercial banks to receive approval from the CBIRC.
Earlier, three national joint-stock banks, including CMB as well as Everbright Bank and Industrial Bank, had received approvals.
CMBWM, a wholly-owned subsidiary of CMB, was incorporated in Shenzhen in November 2019 with a registered capital of RMB 5bn.
It aims to build an “all-round asset management business model which focuses on fixed income investments, supplemented by equity and alternative asset investments to provide its customers with cross-market, multi-category wealth management product portfolios”, according to the statement.
JPMAM had AUM of $1.9trn, as of 30 September 2019, and has been active in China for several years.
In addition to creating its CIFM joint-venture in 2004, the firm has offered China A-Share equity funds to international clients since 2006, has five mutual funds approved for northbound distribution in the Mainland-Hong Kong Mutual Recognition of Funds scheme, and established an asset management WFOE in 2016.
