China to Allow Mutual Fund Sale - Analyst Blog

In the further opening up of its financial markets, China’s securities regulator – China Securities Regulatory Commission (CSRC) – sanctioned the introduction of domestic mutual funds within China by global banks. The 7 global banks comprise HSBC Holdings plc (HBC), The Bank of East Asia, Limited (BKEAY), DBS Bank, United Overseas Bank, Hang Seng Bank Limited (HSNGY), Nanyang Commercial Bank and Citigroup Inc. (C).

The move is expected to aid the companies widen their scope of financial services within the Chinese local market. These banks will get the opportunity to sell fund products to corporate, retail and institutional clients, which are designed by local fund managers. Prior to this, foreign banks were allowed to sell only Qualified Domestic Institutional Investor (QDII) funds to its Chinese clients that restricted access of the foreign banks to China’s domestic retail investment market.

At the onset, HSBC would sell local fund products that are managed by its local joint venture, HSBC Jintrust Fund Management Co. Notably, it plans to partner other fund houses by this year end. On the other hand, Citigroup intends to sell the mutual funds to the public with the help of seven other mutual fund companies that include China Asset Management Co.

Other foreign banks that have applied for a license to sell local mutual funds in China include Oversea-Chinese Banking Co and Standard Chartered PLC (SCBFF).

In the past two years, CSRC have undertaken several measures to enhance the participation of institutional investors in the country’s stock market and promote more foreign investment. As per the new mutual fund rule, domestic futures companies and insurance companies have been granted permission to sell mutual funds in China.

Additionally, the Shanghai Stock market has directed companies to return 30% of its profits to shareholders in the form of dividends. Moreover, the restrictions on foreign investors applying for Qualified Foreign Institutional Investor (QFII) licenses have been lowered by increasing the national quota for QFII investments to $80 billion from $30 billion in Apr 2012. This is further expected to increase by 10 times the present quota going forward.

The opening of Chinese financial markets to foreign lenders is expected to increase oversees banks’ market share in the country’s financial markets. Moreover, it will provide a strong foothold to the companies in China’s rapidly growing mutual fund market.

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