Global Trustee and Fiduciary Services News and Views Issue 50

Global Trustee and Fiduciary Services News & Views | Issue 50 | 2018 91 The major Regulators of the financial services industry in China came together in April 2018 to issue a joint announcement, which, in effect, seeks to outlaw unregulated activities and aims to force more money into the regulated areas of the market, especially mutual funds. 9, 10 This is against a backdrop of falling interest rates, where the wide gap between the deposit rate banks were able to pay, and the returns offered by money market- type funds has narrowed considerably, making the latter much less attractive than previously. Key players’ market share in the Chinese asset management Industry (as of Q3 2017) CIBRC-regulated commercial banks and insurance and trust companies combined account for 43% of total market share. The CSRC-regulated entities are growing in size and surpassed RMB50 trillion (USD7.5 trillion) for the first time in 2017. 11 Together with private funds, CSRC- and AMAC-regulated funds account for 45% of total market share. 12 Future opportunities Looking forward, the outlook for fund management in China is very bright. It is expected that China will account for nearly half of the global fund management industry’s net new flows to become the second largest asset management market in the world by 2019, surpassing the UK. 13 It is probable that individuals, both retail and high net worth, will power China’s growth, accounting for over half of assets under management by 2030. 14 Much of the growth will be driven by individuals in the “mass affluent” and high net worth categories, alongside pension and insurance money. Among the many growth drivers being cited are: 1. A confluence of demographic factors, viz a rapid increase in retail investors’ wealth. 2. Structural factors, viz the limits of the Chinese banking system to efficiently allocate national savings through corporate lending. 3. And policy, viz the central government’s sustained support of a funded defined- contribution retirement system and sounder domestic equity and debt capital markets. There has also been seen a willingness on the part of the central government to encourage greater use of defined contribution retirement schemes, allowing the accumulation of assets for the approximately 800 million employees in the Key players’ market share in the industry urban areas. These products are being developed by insurance companies and fund management companies, and are expected to become a major factor in stabilising stock markets as their growth accelerates in coming years. What are the route choices for market entry? For fund management companies, it is very important to make the right choices when deciding on what route to take when trying to enter the Mainland China mutual funds market. Indeed, for some fund managers, they may not want to participate in the mutual funds market at all, preferring to only seek institutional assets for management. Whichever route is selected, there are inevitable consequences that will affect both the choice and the progress made to eventual full ownership. Commercial bank Trust company Insurance company Asset management company (mutual fund) Asset management company (segregated account) Asset management company (subsidiary) Securities companies Private fund managers 24 % 19 % 12 % 8 % 5 % 8 % 15 % 9 %