Shenzhen-based Penghua Fund Management and the Industrial and Commercial Bank of China (ICBC) have signed a cooperation agreement this week to launch China's first open-end fund. With more than 37,000 branches and offices (1995 figures) across the country, ICBC could offer Penghua a distribution network unequalled by any newcomers in the near future.
The announcement on Monday follows local media reports that Hong Kong fund manager Jardine Fleming is in talks with a mainland manager, Huaan Fund Management, to look at what role Jardine could play in helping Huaan to launch an open-end fund.
The Chinese government's newspaper, China Daily, reported in May that at least six fund managers from Hong Kong and overseas have tied up with mainland financial institutions to prepare for the opening up of China's investment fund market.
Under proposed measures announced earlier this year, foreign fund managers will be allowed to take a stake in local firms of up to 33% in the first year of their joint venture, moving up to 49% in the third. The cooperation between Penghua and ICBC will be a purely local affair and their fund is yet to be approved by the securities regulator, the China Securities Regulatory Commission.
While teaming up with major banks on the national scale is beneficial to fund distribution, signing up with foreign managers will bring investment experience that local managers desperately need. Guotai Fund Management, one of China's largest fund managers and brokers, started looking for a joint-venture partner two months ago, saying it is investment expertise, not capital, that it is seeking.
China's fund industry is set to explode. A recent study by the People's University in Beijing expects the fund management industry will grow to $400 billion by 2010. As of 31 May, China had 10 fund managers operating 25 closed-end funds with a total size of just Rmb51.1 billion ($6.16 billion).