Foreign firms seen delaying China plans amid epidemic
No matter that foreign asset managers and asset owners are taking a wait-and-see approach to China thanks to the coronavirus outbreak, regulators seem likely to keep liberalising financial markets.
Overseas firms' expansion in China looks to be largely on hold thanks to the coronavirus outbreak, Liu Shichen, head of research at Shanghai-based investment management consultancy firm Z-Ben Advisors, told AsianInvestor. They are going to hold off making aggressive moves or even entering the mainland Chinese market until it is more stable, he added.
This would include acquiring stakes in insurance or fund joint-ventures, setting up investment management wholly foreign-owned enterprises (IM Wfoes) and applying for private fund management (PFM) or other licences.
Many foreign companies see China as a long-term play, and the coronavirus outbreak will not change this, but still the epidemic has put a brake on some activitities, including recruitment, one expat executive at an insurance joint-venture in China told AsianInvestor.
It's clearly affecting day-to-day business for investment firms in mainland China. "To minimise the risk, we continue to reduce large gatherings, encourage working remotely and are holding most internal and client meetings via audio or video conferencing," said a Hong Kong-based spokeswoman at Standard Life Aberdeen.
Other big firms, however, said that the outbreak is having little impact on their commercial business or strategy.
"The outbreak does not have a material impact on the operation of our asset management business. Our launch of three local private equities funds has received a good response from the market,” said Raymond Yin, head of Asia-Pacific and China onshore at UBS Asset Management.
Meanwhile, a spokeswoman at an US-based fund house said: “We will adapt to the circumstances as needed, but we’re not structurally altering our business strategy, which remains focused on growing our presence across Asia-Pacific and expanding onshore in China."
However, she declined to comment specifically on how the outbreak might have impacted its business plans.
CHINA COMMITMENT
While some financial firms may be hesitant to enter or expand in China, observers believe that the authorities will be keen to further open up the market.
“From the regulators’ perspective, they should be very resolute in opening up the market to foreign players, particularly because this is the first year [when foreign insurers and fund firms can become wholly-owned entities],” Liu said.
If foreign firms are seen to be putting their plans on hold, the regulator is likely to push the agenda more forcibly, he added, potentially by expediting applications or introducing favourable policies.
Steps for opening up the market had been outlined in the first phase of the US-China trade deal signed in mid-January, said Zhang Wei, chief macro strategist at Shanghai-based Kunlun Health Insurance.
Beijing has repeatedly pledged to liberalise its financial markets as part of a reform plan to evolve its markets and attract foreign capital. And last July the State Council announced that life insurers and fund managers could become 100% owned by foreign firms as soon as this year. This is one year earlier than previously scheduled.
Moreover, PFM licences have continued to be awarded this year, to IM Wfoes including BEA Union Investment, Schroder Adveq and Russell Investments.
Ultimately, most market experts believe Covid-19 is likely to be a short-term speed bump for the steady growth of China's financial markets.
The country is set to contribute the most to global insurance premium growth in 2020 and 2021, and its share of global premiums is expected to hit 20% by 2029, up from around 11% in 2019, Swiss Re Institute said in July last year.
Moreover, the scale of China’s fund management industry is expected to surpass $22 trillion by 2021. By that time, China will be the world’s second-largest financial market, leading Asia's asset management industry, which consultancy McKinsey forecasts will generate revenues of $70 billion.