The Chinese government's announcement that it will allow foreign bank mutual funds and custodian businesses is meant to increase competition and options for Chinese consumers. Over 30 foreign firms have prepared to launch mutual funds in China, including Morgan Stanley, Citigroup, JP Morgan and HSBC.
Despite China's latest announcement, there are still some barriers that foreign banks need to overcome. For instance, China will allow foreign banks that are incorporated in China to sell mutual funds but no time-line has been specified.
The Big Four
Investment demand under the Qualified Domestic Institutional Investor (QDII) has been unresponsive ever since the global recession. Two-thirds of mutual fund sales in China are sold through major local banks, including the Industrial and Commercial Bank of China (ICBC), China Construction Bank, and the Bank of China. These Chinese banks, along with the Agricultural Bank of China, are known as the Big Four. As foreign banks will only start out in the big cities, the Big Four will most likely maintain their influence.
Although foreign financial firms do not expect entry into a new geographical region to be an easy ride, competing against four well-grounded, well-known local banks will make the road even more bumpy.
"If you look at the size of foreign banks' networks or client base in China, I don't think they will make a big impact in terms of mutual fund sales," said Li Datao from ICBC Credit Suisse Asset Management during an interview with Reuters.
The 30 firms that already have their foot in the door claim, however, that they are shooting for long-term gains.
China's mutual fund industry is anticipated to rapidly grow to over $1 trillion in assets by 2015, a massive 150% industry growth. Perseverance will pay off for those who can afford to hold on.
Key Players - Banking in China
- China Asset Management, Boshi Fund Management, Harvest Fund Management, China Southern Fund Management, E Fund Management, Da Cheng Fund Management, GF Fund Management, Huaan Fund Management, China International Fund Management, Invesco Great Wall Fund Management, HSBC, Bank of China, ICBC, Morgan Stanley, JP Morgan, Bank of China, China Construction Bank and Citigroup
Key Statistics - Mutual Funds in China
- According to the Investment Company Institute, upon the closing of 2009, it was revealed that China had accounted for only $381 billion of the roughly $23 trillion from mutual funds and similar financial tools.
- According to Reuters, China's $400 billion mutual fund industry will increase 150% to over $1 trillion in assets by 2015.
