currency inflows and outflows, while still seeking to encourage greater international usage. As Xiong tells flow: “The regulator needs to preserve a balancing act where international investors are assured that if they have money in China, they can get it out without restrictions. From what I see, the PBoC is trying to manage this while gradually increasing exchange rate flexibility.”
To date, regulators have managed to achieve this balancing act. “The PBoC wants a more free-floating RMB as it will allow for more freedom and flexibility in terms of monetary policy,” says Xiong. “While some local companies that import or export may be worried about RMB volatility, I believe the central bank wants to gradually introduce a bit of volatility into the currency, and is keen for domestic corporates to learn how to manage currency volatility through hedging.”
Money going in More international fund managers are beginning to launch Chinese onshore subsidiaries as they look to win mandates from the country’s burgeoning retail market, a demographic that Deloitte forecasts will make up US$30.2trn in investable assets by 2023 (see Figure 2 on page 67).7
The ability of foreign fund
managers to do this has been made possible by local regulators. Until recently, foreign asset managers looking to distribute products into China had to partner with a local securities provider, often through a minority-owned joint venture (JV). The wholly foreign-owned enterprise (WFOE) reforms announced in 2019 included a timeline for removing restrictions on foreign ownership of local asset management companies, putting an end to the JV requirement.
In April 2020, the CSRC accepted global asset managers’ applications for wholly foreign-owned fund management companies in China. Initially WFOEs were only allowed to target institutions, but China’s regulators have since confirmed they can also market to retail. This will likely prompt more global managers to establish WFOE private fund management companies in China, joining others such as Aberdeen Standard, BlackRock, Nomura and Fidelity who have already done so. “China’s population is getting older and its middle classes bigger, meaning there is an increasing demand for wealth management and investing,” adds Chao.
68
Figure 3: Top 10 domiciles of worldwide fund assets (%)
US 47.9
Luxembourg 8.8
Ireland 5.8
Germany 4.6
Others 11.7
China 4.1
France 3.8
Japan 3.7
Australia 3.5
Brazil 3.1
UK 3
Source: Financial Times (European Fund and Asset Management Association; Investment Company Institute)
US$15trn
The value of China’s onshore bond market
(ICMA)
According to the Asset Management Association of China, assets under management in China totalled RMB56.17trn in Q3 2020, while 1,200 mutual funds were launched last year, accumulating a record RMB3trn.8
Research by the European Fund
and Asset Management Association and the US Investment Company Institute also found that China overtook the UK, Australia and France in 2020 to become the fifth-largest fund domicile globally (see Figure 3, above).9
In addition, the European Union–China agreement on (direct) investment signed in December 2020 ensures that EU investors achieve better access to a fast-growing 1.4 billion consumer market, and that they compete on a more level playing field in China. The agreement includes conditions for market access covering areas such as manufacturing, the automotive sector and financial services. JV requirements and foreign equity caps have been removed for banking, trading in securities and insurance
(including reinsurance), as well as asset management. In relation to providing a more level playing field, the agreement includes provisions stipulating that Chinese state-owned enterprises should not discriminate in their purchases and sales of goods or services.
Money going out
Since 2006, China has operated the Qualified Domestic Institutional Investor (QDII) scheme, a programme that enables domestic institutions to allocate capital offshore, albeit this is subject to quotas. SAFE data suggests that US$116.7bn in QDII quotas has been allocated since the initiative started.10
To further loosen capital controls, in 2020, China issued three separate QDII quota batches totalling US$12.72bn to financial entities such as banks, asset managers, insurance firms, securities companies and trusts.11
Facilitating inbound and outbound capital flows Global banks with a licence to operate in China are facilitating these inbound and outbound flows. In December 2020, Deutsche Bank received its domestic fund custody licence from the CSRC, enabling it to provide post-trade services and other solutions for funds established in China, including WFOEs and the domestic asset management industry.
Following the QFII and RQFII changes, global banks are also facilitating offshore investors’ access to new, onshore
Per cent
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94
