China’s Fund Industry Forecast to Quintuple by 2025

UBS said it expects Chinese mutual fund assets to reach nearly $7.5 trillion.

China’s mutual fund assets are forecast to increase by a factor of five to Rmb47 trillion ($7.49 trillion) by 2025, according to UBS, and could create a fee pool for mutual fund providers worth $42 billion a year.

In late 2017, the Chinese government announced reforms designed to spur the growth of China’s investment industry. As part of those reforms, China plans to relax or eliminate foreign ownership limits on domestic financial services firms, including asset managers, which is intended to attract greater involvement by large international investors. The changes mean foreign firms will be allowed to own stakes of up to 51% in securities ventures and fund management companies, and China will scrap foreign ownership.

And just this week, the Chinese government said it will substantially reduce restrictions for foreign investors to further open up the economy. A spokesperson for the National Development and Reform Commission said at a news conference the government will impose a much smaller number of restrictions, and unveil opening-up measures in fields such as finance, automobiles, energy, resources, infrastructure, transportation, commercial circulation, and professional services.  

“The opportunity is substantial but it all depends on the progression of reform and deregulation,” Kelvin Chu, an analyst with UBS, told the FT. “The lifting of foreign shareholder limits in mutual fund companies should be appealing to many [international investors].”

Earlier this year, Fidelity International announced it is seeking to enter the mutual fund and pension fund market in China.

“China is a market of high strategic importance to us,” Daisy Ho, Fidelity’s managing director for Asia excluding Japan, told a news conference in Shanghai in January. “Any development in opening up China’s capital markets, whether it’s about the mutual, private, or pension fund market, we’re hugely interested.”

Foreign asset managers own minority stakes in 19 of the country’s top 30 mutual fund companies, often in partnerships with domestic commercial banks, according to the FT.

Stewart Aldcroft, Asia chief executive of CitiTrust, the securities and fund services arm of US bank Citigroup, told the FT that the decision to allow foreigners to own 100% of mainland fund management companies by 2020 had provided a “huge opportunity” for international firms.

“The challenge is partly in comprehending the scale of the opportunity in China, as well as getting set up to participate,” he said. “Many global managers are disbelieving, sitting in their offices in New York, Boston, and London. They need to come and see for themselves.”

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