Mixed reaction to possible changes in Chinese JV rules

24 July 2014   Category: News, Asia, China, Global, Hong Kong   By Hui Ching-hoo

A potential relaxation in regulations governing asset management joint ventures (JVs) in China has received a mixed reaction from the industry, Asia Asset Management found.

A report in London’s Financial Times suggested that the China Securities Regulatory Commission (CSRC) could allow foreign fund managers to acquire majority stakes in Mainland-based joint ventures.

However, no timetable has been given, with the regulatory watchdog saying only that restrictions on foreign ownership would be gradually relaxed “when the time is right”. Overseas fund managers looking to access mainland Chinese investors may currently only do so through partnerships with local fund management firms.

Wang Qunhang, director of the fund assessment centre at Beijing-based Jian Financial Information, told Asia Asset Management that state-owned or resource rich Chinese shareholders such as ICBC are unlikely to allow their foreign partners to acquire a controlling stake in their asset management JV. He said that this is due to fears that is could cause disarray in the firm’s management, and put local shareholders’ interests in jeopardy.

“Alternatively, it will be more pragmatic if the foreign entities team up with smaller local partners to form new joint ventures. In this case, they might hold the majority stakes,” Mr. Wang said.  

He added that the majority of Sino-foreign asset management JVs failed to stand out from their local peers, despite the ceiling on overseas stakes in these funds having been raised from 33% to 49% since China’s entry to the World Trade Organisation. Mr. Wang said that their mediocre performance was because foreign partners found it difficult to adapt to Chinese cultural and accounting practices.    

State Street Global Advisors and BNY Mellon Western Fund Management have recently withdrawn from their Chinese JVs.

However, some market practitioners anticipate that the initiative, together with the imminent China-Hong Kong mutual recognition arrangement and the Shanghai-Hong Kong ‘Stock Connect’ programme, will accelerate the development of China’s fund market.

Stewart Aldcroft, Asia chief executive at CitiTrust, Citigroup’s securities and funds services business, said that China is looking to draw on the best practices of global players, while also strongly supporting its domestic asset managers.

China’s US$3.5 trillion wealth management sector is several times larger than its fund industry, but remains largely unregulated. Chinese regulators want to see a wider choice of better designed and governed products and services for individual investors, he added.