UBS Eyes China Equities as Foreigners Win Wider Access

(Beijing) — The Shanghai subsidiary of the Swiss financial services company UBS AG has applied for permission to invest in mainland equities on behalf of Chinese clients, an arrangement made possible only recently for foreign investment managers operating in China.

Bermuda-based Fidelity International became the first foreign firm licensed to serve Chinese investors with mainland investment opportunities in early January.

Now, the UBS subsidiary has applied for a registered private fund manager license from the Asset Management Association of China (AMAC), which helps the China Securities Regulatory Commission (CSRC) supervise investment funds.

The license would let the Swiss firm’s unit sell investment products and use investor funds to play China’s stock markets, according to several senior UBS executives.

The executives said they are confident regulators will approve the request within two months, strengthening their ability to compete against Chinese asset managers.

The firm plans to start selling products by the end of the third quarter, said Aries Tung, head of strategy and business development at UBS Global Asset Management.

Wholly foreign-owned fund companies have been allowed to sell products on the mainland through a pilot program, but the funds they received must be invested offshore. The restriction was meant by the Chinese government as a protection for domestic asset management industry. The pilot program, known as Qualified Domestic Limited Partner (QDLP) program, was launched in 2013.

Most participants in the program have struggled to cover their operating costs, according to sources familiar with the program. Nevertheless, these firms hung on in hopes of getting a head start over competitors after China relaxed restrictions and let foreign firms directly access the Shanghai and Shenzhen stock markets on behalf of Chinese investors.

In June, Beijing promised to give foreign firms better access to the Chinese market by letting them sell products and invest in China. The gate finally opened last week when AMAC released operating guidelines for the new, foreigner-friendly policy, under which Fidelity launched its business.

Initially, foreign firms opposed some of AMAC's proposed guidelines, according to sources with knowledge of the matter. Many were concerned, for example, about a proposed requirement that the foreign company be incorporated in a country that has signed a memorandum of understanding with China’s securities regulator.

The requirement —included in the final guidelines — excludes companies based in the British Virgin Islands, Cayman Islands and other countries and regions best known as offshore tax havens, according to foreign fund company executives who spoke with Caixin.

The guidelines also say private fund-management subsidiaries set up by foreign companies in China are prohibited from placing orders through institutions or systems outside the mainland. Moreover, these subsidiaries must maintain complete records for all transactions, and keep separate books for their investments in China and those overseas.

Contact reporter Chen Na (nachen@caixin.com)