Momentum is steadily building for foreign asset managers looking to build a retirement business in China, but regulatory hurdles seem to be slowing things up for those seeking approval for onshore pensions companies.

On the one hand, Canadian insurer Manulife last week inked a distribution tie-up with Agricultural Bank of China (ABC) that it expects to help it tap the individual retirement savings market. On the other, Manulife has spent at least 16 months looking for a partner with which to set up an onshore pensions JV.

The firm is in discussions with banks, including ABC, but regulatory question marks remain. “There is quite a lot of uncertainty within China as to how [the regulations on foreign JVs] would take shape and the timeline—that is a central issue,” said Dommermuth.

Given the memorandum of understanding that Manulife signed with ABC on December 13, the latter would be its preferred partner for the pensions JV, he noted.

Forming such a company and securing the required regulatory approvals would enable Manulife to directly participate in the enterprise and occupation annuities market, said Dommermuth. It would also offer other retirement solutions.

Michael Dommermuth

“There’s a massive amount of bank deposits that are earning negative real returns,” he said. “A company such as ABC or any of the large banks is best positioned to help those customers transition out of bank deposits into more suitable investments for the ageing population in China.”

Dommermuth declined to comment on whether it has engaged in talks with the regulator or whether Manulife might be the majority shareholder in the JV.

Establishing a mainland pensions company would seem a logical next step for Manulife, given that it already has asset management and insurance JVs in the form of Manulife-Teda Fund Management and Manulife-Sinochem Life, which both target the 'third pillar' of China's retirement system. 

The mainland retirement industry comprises three pillars. The first incorporates public pension assets run by the government, the second is made up of enterprise and occupational annuities, and the third is built from personal savings and voluntary individual contributions to pension plans.

Michael Huddart, Manulife’s general manager for Greater China, had told AsianInvestor last year that the company would ideally want sole ownership of an onshore entity for expanding the pension business, but that realistically it would be a JV.

Fund-of-funds focus

Meanwhile, Manulife and others have been moving to expand their fund-of-funds (FoF) offering in China, with the regulator seen to be favouring such products to spearhead the development of the third pensions pillar.

In September the China Securities Regulatory Commission had approved six fund houses to launch FoFs—ChinaAMC, China Southern, CCB Principal, Harvest, HFT and Manulife Teda. Three of these are Sino-foreign JVs looking to tap opportunities under the third pillar.

CCB-Principal, a Beijing-based JV between US-based Principal Financial Group (PFG) and China Construction Bank, is keen to sell FoFs into the mainland’s voluntary pension market, said Thomas Cheong, president of North Asia at PFG.

PFG has been helping CCB-Principal—its JV with China Construction Bank— to build up its FoF investment capabilities, he told AsianInvestor.

Meanwhile, HFT Investment Management, a JV between France's BNP Paribas Asset Management and Haitong Securities, is seeking to expand into China's pension market, said a company spokesman, without further elaboration.

And more fund houses will venture into the pension market in China because it is so huge, Wu Haichuan, head of retirement business at consultancy Willis Towers Watson, told AsianInvestor.

Certainly, Beijing will need all the help it can get tackling the country’s retirement challenge. Among other issues, the public pension scheme is now underfunded, as AsianInvestor reported recently. Thirteen local governments, representing almost a third of the Chinese population, are unable to fully cover their pension liabilities from worker contributions.