Global Trustee and Fiduciary Services News and Views Issue 50

Prime, Futures and Securities Services | Financial Services Regulation 90 At the time, few would have believed that by 2018 China’s stock markets, in aggregate, would have become one of the top three largest in the world by size and the largest by trading volume. The aggregate scale of the assets managed in mutual funds, wealth management products and other of the various schemes made available to citizens now exceeds approximately USD20 trillion. 1 There is a fantastic success story to be told, yet for the most part, most of the top prizes to date have been reserved for domestic businesses in China. Foreign firms, i.e. global fund managers, have had multiple restrictions on what they can do to participate. But all this is changing! China is opening up, and there are many opportunities for global players to participate . . . Why should global fund managers be interested in China? 100% foreign ownership in 2021 Following the November 2017 meeting between US President Trump and President Xi Jinping of China, Vice Minister of Finance Zhu Guangyao announced the Chinese government’s intention to allow 100% foreign ownership of securities and fund management businesses in China within three years. 2 At the Boao Forum for Asia in April 2018, this decision was confirmed and further details were given as to what it would entail. 3, 4 Also in April 2018, in a historic joint statement from the principal securities, banking and insurance regulators, new Asset Management GLOBAL FUND MANAGERS’ POSSIBLE ROUTE MAP FOR CHINA MARKET ENTRY Around 25 years ago, the authorities in China began to be interested in developing their capital markets abilities. Stock exchanges were opened in Shanghai and Shenzhen. Members of the general public were allowed to buy stocks on the market, albeit their choices at the time were limited to mainly (former) State-Owned Enterprises (SOEs). And talks began for allowing the creation of mutual funds and fund management companies that could be set up. Rules were announced with the objective of totally transforming the current market landscape for wealth management, distribution of products and for the fund management industry. 5 Among many changes, these new Rules confirmed that from 2021, non-Chinese firms could own 100% of a Mainland Chinese fund management company, thus allowing that firm unrestricted access to offer investment services and products to the domestic retail market. USD17 trillion market, growing at 13% yearly Of course, the single biggest reason for this global interest in the Chinese investment management markets is the size and scale of them, and the potential growth forecast to occur over the next five to 10 years. There is no other market in the world that offers as much potential as China, albeit subject to many hurdles, which will need to be both understood and successfully navigated. During 2017-18, a number of reports were published, outlining views on the current scale of the market and providing estimates of the potential growth expected in the near term. 6 These provided a very positive picture. However, any such views should always be taken with a high degree of caution, given the volatile nature of not only the fund management business, but also Chinese markets in particular. In early 2017, the aggregate size of assets in the combined asset management and fund management markets was estimated to be not less than USD17 trillion. 7 This was made up from a number of sources. For example, the regulated fund management industry was estimated to have around USD1.7 trillion, whereas the (unregulated) wealth management industry had over USD6 trillion. 8