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China’s fund distribution deregulation creates opportunities although barriers still remain

China’s fund distribution deregulation creates opportunities although barriers still remain

22 November 2011

From the beginning of October 2011, independent third-party distributors and locally incorporated foreign banks have been able to apply for a licence to distribute funds in China, following deregulation of the industry. This represents a significant step towards opening the People’s Republic of China (PRC) fund distribution market.

Since 2010 China ranks as the world’s second largest economy after the United States and the attraction for fund managers is clear – a large, mainly untapped market of individual investors, institutions and high net worth individuals. The mutual funds market in China is still very small in comparison to mature markets on a global scale and the sector is currently dominated by Chinese banks with about 60% of mutual funds distributed through bank outlets every year.

On one hand, this deregulation creates opportunities for new players that can distribute mutual funds online and charge lower commission rates.

However, the global financial crisis has limited China’s appetite for bold reform and the country has continued to erect a wall around its capital markets. Chinese exchange control and securities restrictions are likely to still mean that foreign funds domiciled in offshore jurisdictions can’t be offered directly to PRC markets. As with many other regulatory initiatives in China, the devil is in the detail when it comes to regulations and how they are actually implemented on the ground.

Major remaining barriers to entry include inconsistently enforced laws and regulations, and the lack of a rules-based infrastructure. Indeed, this regulation is one of the reasons that the timetable to turn Shanghai into a world-class financial centre by the end of the decade is currently slipping. This slow pace of progress means that Hong Kong and Singapore will remain the dominant financial centres in the region for fund distribution in the short term.”

Are you looking to distribute funds in China? Share your thoughts.

 

About the author

Tricia Riddell

Tricia Riddell

Head of Product, Wealth - EMEA

Based in our London office, Tricia has more than 25 years of experience and is highly respected in the funds industry. She regularly appears in the media.

Tricia’s responsibilities include all aspects of the product strategy for the EMEA wealth management business, in addition to leading the EMEA product management team.