China Clears Last Hurdle for Foreign Private Funds to Invest Onshore

(Beijing) — China has published rules allowing foreign private fund companies to sell products in the country and invest funds received in the A-share market.

This paves the way for foreign fund companies to tap China’s growing demand for wealth management services by broadening the scope of securities they can buy for clients to include those issued and traded on the Shanghai and Shenzhen stock exchanges.

Previously, foreign fund companies permitted to raise funds in China could only make investment overseas. This limited the competition Chinese fund managers faced.

The Chinese government promised last year to relax the restrictions and let foreign fund companies buy Chinese stock for their clients because it would “increase the breadth and depth of the Chinese capital market and improve the competitiveness and global influence of the private fund industry.” The operating guidelines, published on Thursday by the Asset Management Association of China (AMAC), a government-affiliated industry group, cleared the last hurdle for them to do so.

The new rules spell out the requirements foreign companies must meet to set up a wholly owned or joint-stock subsidiary in China that can invest in the domestic A-share market on behalf of clients.

Under the rules, foreign-invested firms conducting investment business in China are prohibited from placing orders through institutions or systems outside the mainland. They must keep full records of all transactions, separate their investments in China from those in foreign markets, and comply with the Chinese government’s foreign-exchange regulations.

Foreign parent firms of subsidiaries must also disclose to the regulator major equity investments in other enterprises in China and connections, if any, to other foreign companies that may have significant influence over their asset management business in China.

The new guidelines show little change from draft rules the association released for feedback last year. Several foreign institutions told Caixin earlier that they hoped some of the draft rules could be changed, such as a requirement that the foreign parent firm must be incorporated in a country that has signed a memorandum of understanding with China’s national securities regulator. This would impede firms registered in some offshore tax havens from taking part in the program, they said. In the published regulations, this requirement has been kept.

The association had approved the Shanghai subsidiary of Fidelity International, a global asset manager, to operate under the rules one day before it published them online.

Contact reporter Wang Yuqian (yuqianwang@caixin.com)