China wealth market opening to spur competition

China’s move to further open up the country’s wealth management sector to foreign players will shake up competition in what has been a protected local market.

The China Securities Regulatory Commission (CSRC) announced changes in regulations this week that will allow foreign fund managers, private banks and custodians to distribute products in China via both the domestic banks and foreign bank channels.

Under the new regime domestic banks will be allowed to distribute foreign mutual funds and foreign private banks will be able to distribute more foreign mutual funds in China by later this year.

The CSRC said locally incorporated foreign banks can apply for business licenses and “enjoy the same rights as local banks in distributing mutual funds.” Foreign banks will also be able to provide custodian services, giving them broader access to China’s financial services market.

Andrew Crawford, managing director Republic Partners, said this will bring major changes to the market, improve the range of products available and spur competition.
   
“The product suite has been very restricted to local offerings. There are a lot of sub-par products and foreign banks have been even more limited in what they could sell. Now they will be able to sell a much wider range of products,” Crawford said.

Domestic private banks will also benefit from being able to enhance their product suites with more foreign fund offerings, though they will face greater competition.

Until now, portfolios have been heavily concentrated on the local market, but the changes will allow more offshore choices. Real estate, gold, mining and resources are likely to attract most attention as products that are seen as part of China’s value chain and linked to its continued rapid economic growth.

Roger Zhuang, head of China operation for Republic Partners, said wealth management in China was evolving rapidly. “Banks are keen to learn from foreign providers and select the best products from overseas for their client’s. In China, wealth management is far more client outcome oriented than the rest of Asia which is more transaction focussed,” he said.

The liberalization of China’s financial industry opens up opportunities for new entrants in the market. There has been a big increase in the number of US and UK banks seeking assistance to set up joint ventures in the country. The rule changes mark the beginning of a new era for foreign fund managers, private banks and custodians in China, Crawford said.

 

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