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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Global | Publication | November 2021
Foreign financial services companies are expanding their wealth management operations in China to capture rising incomes. In particular, foreign asset managers have shown interest in setting up multiple operations in China in order to tap into different product opportunities in the pan-asset/wealth management arena.
Following Amudi’s establishment of the first wealth management joint venture with Bank of China in September 2020, other foreign asset managers such as Schroders PLC and Goldman Sachs Asset Management LP are awaiting final approval from the China Banking and Insurance Regulatory Commission (CBIRC) to take majority stakes in joint ventures with the wealth management subsidiaries, respectively, of Bank of Communications Ltd. and Industrial and Commercial Bank of China Ltd.
Most recently, in May 2021, CBIRC also approved BlackRock to incorporate a joint venture wealth management company with China Construction Bank and Singapore’s sovereign wealth fund, Temasek. Last August, the China Securities Regulatory Commission (CSRC) already approved BlackRock to establish the first wholly foreign owned mutual fund management company. That means that BlackRock now can operate both wealth management business and mutual fund business in China.
Although both wealth management firms and mutual fund managers are retail client facing, as they are respectively regulated by CBIRC and CSRC, the differences are also obvious, which may therefore have attracted foreign investors to consider both.
One key difference relates to investment targets. Wealth management products, as being regulated by CBRIC, are more focused on investing into less aggressive fixed-income products, while CSRC-regulated mutual funds mainly invest in stocks and bonds. Another major difference is the investors. By then, individuals (including high net worth individuals) are still the majority of the investors of wealth management products, but both institutions and individuals may become the investors of mutual funds.
In this regard, it is not uncommon in current market practice that wealth management firms and mutual fund managers (in particular those falling within the same group) co-operate closely in order to offer various types of investment portfolios to potential customers so as to expand client base.
On September 10, 2021, the People's Bank of China (PBOC) Guangzhou Branch published the Detailed Rules for the Implementation of the Cross-Boundary Wealth Management Connect Pilot Scheme (the WM Connect Rules, in Chinese:《粤港澳大湾区“跨境理财通”业务试点实施细则》). Such WM Connect Rules stipulate the following key requirements regarding the implementation of the pilot wealth management connect regime (the WM Connect) in the Greater Bay Area (GBA):
Although the WM Connect remains a pilot scheme, the market has considered it as another exploration, following the Stock Connect (launched in 2014) and the Mutual Fund Connect (launched in 2015), made by the Chinese Government in order to broaden China’s cross border capital account investment channels. It is anticipated that the implementation of the WM Connect may further speed up the process of RMB internationalization.
Publication
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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