China opens local private funds space to foreign players
China has moved to open up its markets to overseas private fund managers by allowing wholly foreign-owned enterprises (WFOEs) and joint ventures to raise capital domestically and invest it in private companies and the stock markets.
The China Securities Regulatory Commission (CSRC) said it had authorized the Asset Management Association of China (AMAC) - an industry body set up to oversee private managers - to issue guidelines for applicants and manage the registration and filing processes. Activities must not involve cross-border capital flows, which means fundraising is restricted to qualified institutions within mainland China.
"We believe this will enrich the institutional-investor base of China's capital market, create an orderly competitive environment for China's asset management industry, enhance competitiveness and international influence of China's private fund management industry in particular by further opening up China's capital market and drawing on good practices of overseas entities in respect of their advanced asset management models, investment philosophies and strategies, compliance and risk control," the regulator added.
Notably, the rule change applies to "sunshine funds," defined as privately raised pools of capital that invest in public securities, as well as pure private equity vehicles. This corresponds to ongoing efforts to liberalize the capital markets and encourage more foreign participation.
In February, China increased the maximum qualified foreign institutional investor (QFII) for individual groups from $1 billion to $5 billion, allowed investors to repatriate investments earlier, and loosened the inbound and outbound remittance process. It also removed the quotas controlling foreign participation in the interbank bond market.
Foreign investment firms have been active in China's mutual fund industry since 2003, although they have been restricted to joint ventures. Roughly half of the mutual fund providers now operating domestically follow this structure, and last year Aberdeen Asset Management was awarded an independent business license for a Shanghai-based subsidiary.
The latest reforms were negotiated during the eighth instalment of the China-US Strategic and Economic Dialogue, which took place in Beijing in June.
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