ATC Business Casual 
Author: Sun Wei, Founder of ATC Initiative

Over the past weekend (on Saturday 20 July), China State Council Financial Stability and Development Committee (the country’s highest financial policymaker) announced 11 measures to substantially further open up Chinese capital market. Most of the measures are related to asset management businesses. Please see Appendix 1 for the full list of these open-up measures.

While each measure in the document is worthy of good attention. In this short article, I’d like to focus on item 3 of the measure. It offers a new and very practical route for global managers to build up their China onshore businesses. The measure reads:

To allow overseas asset management companies to form wealth management/asset management JV with subsidiaries of Chinese banks or insurance companies, with the overseas partner taking controlling shares.

Subsidiaries of Chinese banks refer to the wealth management/asset management firms that are being set up by Chinese banks since Jan 2019, according to a recent regulatory decision to separate wealth management/asset management businesses from banking. Subsidiary of Chinese insurance companies refers to licensed insurance asset management firms owned by major Chinese insurance firms.

Global asset management firms started their journey for China onshore business since 2002 when the first Mutual Fund JV was established, with a 33% foreign ownership limit at that time. Although the limit was uplifted to 49%, the minority shareholding has always been a big issue for foreign JV partners who do not have the level of control to fully implement their strategy and management system. In 2016, the Private Fund Management (PFM) scheme was launched to enable overseas managers to establish wholly-owned subsidiaries in China and raised fund from qualified investors. Many global managers have taken this route to build their onshore presence, mainly for the benefit of having complete control over the subsidiaries. Yet in practice, another issue emerged: global brands and track record are not recognized in China and many global managers find it extremely difficult to raise their AUM from Chinese investors with their own efforts. Here is the dilemma: you wish to have full control of your China onshore business but you would also like to have a close Chinese partner to help you raise fund.

Item 3 of the 11 measures seems to have provided a perfect solution. An overseas asset management firm can form a strong partnership with a local player with funding source (their parents are either banks or insurance companies) while having controlling ownership in the JV. I believe the regulator design this route with a clear understanding of the practical issues faced by global managers and with the intention make this the partnership really work.

It is fair to say that the previously mentioned Mutual Fund JV model has also mended itself to solve the control issue: recently the overseas JV partner can already increase their shareholding to 51%, and now in this very 11-measure document there is one further step announced (item 9) that by 2020 foreign ownership can increase to 100%. Yet compared with the Mutual Fund JV route, the item 3 measure does have its own merits that make itself quite uniquely attractive, especially to overseas managers who have only recently begun to think about their China strategy:

  1. the visibility and availability of potential local partners. These are either Chinese banks’ wealth management subsidiaries or the insurance asset management firms, both regulated by the China Banking and Insurance Regulatory Committee (CBIRC). Currently, 11 banks have been approved to establish their wealth management subsidiaries and 19 banks are in the pipeline. On the other hand, there are 24 insurance asset management firms established by Chinese insurance companies.
  2. ready funding support from potential JV partners’ parent organizations. The asset management AUM of the 11 banks who have set up/are setting up Wealth Management subsidiaries is RMB 15.9 trillion. The 24 insurance asset management firms have a total AUM of RMB 16.1 trillion.
  3. a larger investment scope. Mutual Fund JVs are regulated by the China Securities Regulatory Committee (CSRC) and can only invest in the public market. The Banking Wealth Management Subsidiaries and Insurance Asset Management firms, both regulated by CBIRC, can invest in the public and private market. There is no detailed information about the investment scope for the Item 3 JVs but presumably, that should be the same as the Chinese shareholding partners.
  4. a clearer match of skill set and target clients. It is reasonably straightforward for global asset management firm with strong HNWIs experience to prefer a JV with a Chinese banking subsidiary, while for a global manager with notable pension/insurance client focus to opt for a JV with a Chinese insurance asset management firm.

A spokesman from CBIRC mentioned in an interview after the announcement of the 11 measures that a trial period of this JV route will be launched soon and we at ATC initiative will follow up with various stakeholders closely. If you wish to get updated about the progress and know more about the opportunities this may create for your organization, please sign up for our newsletter and/or get in touch with us.


list of the 11 financial market further open-up measures announced by China State Council Financial Stability and Development Committee

1. To allow foreign-funded agencies to conduct credit rating business for all kinds of bonds in China interbank bond market and exchange bond market.

2. To encourage overseas financial institutions to participate in establishing and investing in wealth management subsidiaries of commercial banks.

3. To allow overseas asset management companies to form wealth management/asset management JV with subsidiaries of Chinese banks or insurance companies, with the overseas partner taking controlling shares.

4. To allow overseas financial institutions to set up and hold shares in pension fund management companies.

5. To support foreign investors establishing wholly-owned or joint-venture money brokering companies.

6. To bring the transitional period of exceeding the upper shareholding limits for foreign investors in life insurance from 51% to 100% forward from 2021 to 2020.

7. To remove the regulation that domestic insurance companies shall hold no less than 75% of the shares of insurance asset management companies in aggregate, the upper shareholding limits for foreign investors will be allowed to exceed the 25% cap.

8. To expand the access of foreign insurance companies by removing the entry restriction of 30 years of operating experience for foreign shareholders.

9. To advance the removal of upper shareholding limits for foreign investors in securities companies, fund management companies and futures companies from 2021 to 2020.

10. To allow foreign institutions to obtain type A lead underwriting license in China interbank bond market.

11. Taking further steps to make it more convenient for foreign institutional investors to invest in the interbank bond market.

Source: People’s Bank of China

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