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China Opens Asset Management Markets: Global Firms to Benefit

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Because of the novel coronavirus outbreak, which originated at Wuhan in China, most of the major world economies have been impacted significantly. The outbreak, which has affected global business activities, has even overshadowed the further liberalization of the investment banking and money management industries in China.

However, while the ongoing crisis has disrupted investor sentiments largely, China is opening its asset-management markets wider for foreign firms, starting Apr 1, 2020.

Notably, China has been continuously making efforts to open its financial markets since 2018.

Further, the global economy is expected to recover steadily as this is not like the 2008 financial crisis when finance companies had collapsed.

Hence, asset managers across the globe can now work with the wealth management subsidiaries of China banks or insurers, wherein they will bring their product design expertise and collaborate with China firms’ vast distribution network and relationship managers. Moreover, they can also apply for wholly-owned fund management licenses, which would grant them full control of mutual funds in China.

The licenses will allow money managers to sell mutual funds to individual investors.

Further, global wealth firms, which are not financially strong to make significant investments, can apply for private fund management licenses, which will allow them to raise yuan-denominated funds from qualified clients to invest overseas.

Lastly, global asset managers can opt for boosting their ownership of existing joint venture (“JV”) partnerships in China to 100%.

Thus, with the different options available, firms like BlackRock, Inc. (BLK - Free Report) , Vanguard Group Inc., JPMorgan (JPM - Free Report) and other global asset managers are being tempted to take advantage.

Notably, Mark Leung, the CEO of China businesses of JPMorgan, said last month in an interview with the South China Morning Post in Hong Kong that the company intends to get approval for full ownership of its China fund management JV, China International Fund Management, by next year.

This is part of JPMorgan’s four-year investment plan in China, which was announced last year. Also, the bank will celebrate 100 years of China operations in 2021.

Likewise, per Larry Fink, CEO of BlackRock, China provides a long-term opportunity as a growing market despite the current volatility.

He stated in his annual letter to shareholders recently, “I continue to firmly believe China will be one of the biggest opportunities for BlackRock over the long term, both for asset managers and investors, despite the uncertainty and decoupling of global systems we’re seeing today.”

Per people familiar with the matter, BlackRock along with Vanguard intends to apply for the license to set up its wholly-owned company in China.

Moreover, BlackRock is in talks with China Construction Bank Corp. to set up a joint venture for a wealth management subsidiary.

Notably, Goldman Sachs (GS - Free Report) and Morgan Stanley (MS - Free Report) have also received a nod from the China Securities Regulatory Commission to increase stake in their mainland securities joint ventures to 51%.

Thus, once foreign firms are allowed to conduct business in China without any restrictions, it will help boost their revenues and market shares. Also, as the current global operating backdrop looks challenging, global diversification is likely to support their financials.

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