China has pledged to allow foreign fund managers greater access to its market as part of the government program to move further in opening up the economy.
Amongst the pledges made by China during the seventh US-China Strategic and Economic Dialogue in Washington DC is that wholly foreign-owned enterprises (WFOE) will be able to invest in China’s domestic capital markets, as reported. This is in addition to being able to manufacture and market their private products to mainland institutions and high-net worth investors.
The June 22 to 24 bilateral meeting, with its conclusions published on the Chinese Ministry of Finance website yesterday, has also seen the mainland government making commitments to liberalise foreign access to the domestic interbank bond markets. By eliminating individual institutional or jurisdictional quotas in favour of an aggregate investment limit, the government hopes to encourage greater take-up by foreigners.
Shanghai's free-trade zone will also see beneficial policies for foreign financial groups, including the set-up of joint venture securities companies with 49% minority foreign shareholding. They also plan to allow foreign brokers to establish futures companies and trade specific domestic futures products for foreign traders. Investors will also be able to buy listed bonds through accounts used within the free trade zone.
“A surprisingly productive conclusion to the US-China Strategic and Economic Dialogue has promised unprecedented rights for foreign firms participating in China’s financial markets,” said a client note from consultancy Z-Ben.
No time-frame has been set by the government for implemtartion of these measures but Z-Ben comments that “China’s opening-up to foreign asset managers is now moving faster than our most optimistic predictions. With that speed in mind, we predict that all of the above opportunities will be available to foreign owners by the end of 2015."
The liberalisation moves by the Chinese government could be much welcomed by foreign fund managers who had their hopes on setting up WFOE structures to tap into the market, given that joint ventures are increasingly falling out of favour with foreign partners.
Russell Investment for example said that has set up its own WFOE entity in May after a four year joint venture partnership with Ping An fell apart due to differences in investment philosophy and business culture.