Axa Investment Management has signed an agreement with Shanghai Pudong Development Bank and Shanghai Dragon Investment to establish a mutual funds joint venture company.

Anthony Fasso, regional CEO at Axa IM in Hong Kong, declined to discuss the proposed deal because the parties donÆt want to appear to pressure the regulators, which must approve the new business. He says the parties hope to provide details in the fourth quarter.

Nor would he comment on the details of the ownership arrangement because it hasnÆt been approved by the government and ôitÆs differentö.

Shanghai Dragon is an investment company wholly-owned by the Shanghai municipal government.

Sources in Shanghai say SPDB has been vocal about its desire to cement the deal by the end of the year. For JVs involving banks, the process is a little more complicated: first they need the approval of the China Banking Regulatory Commission (CBRC) and then the nod from the China Securities Regulatory Commission (CSRC).

Although the authorities have encouraged the big, national commercial banks to set up funds JVs, they have not approved any deals involving regional or city banks. China Merchant Bank and Everbright Bank are currently seeking permission to take stakes in existing JVs run by securities affiliates (China Merchant Fund Management, partly-owned by ING Investment Management, and Everbright Prumerica, partly-owned by Prudential Financial of the US).

The government may prefer to see these deals worked out before it approves new fund companies with regional banks such as SPDB or Minsheng Bank, which is reportedly seeking to establish one with Royal Bank of Canada. Agricultural Bank of China remains the last of the big nationals yet to secure its funds JV; it is in talks with Credit Agricole Asset Management.

The CSRC is believed to prefer foreign firms buy stakes in existing fund JVs rather than start greenfield companies, as the scene is crowded; there are now 56 companies with operating fund management licenses. CITIC Securities acquired a 41% stake in China Asset Management, while DBS Asset Management recently bought a stake in Changsheng Fund Management, Nikko Asset Management is believed to be seeking a stake in Rongtong Fund Management, and Mellon Financial is reportedly interested in a stake in tiny Soochow Fund Management û the smallest existing manager in terms of assets under management, owned in part by Dongwu Securities.

But new JVs are still possible; earlier this spring, the government approved three new JVs for Banca Lombarda/Guodu Securities, Lord Abbett/Yangtze Securities, and First State Investments/Cinda Asset Management.