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Increasingly Accessible Chinese Financial Market – An Overview of Recent Developments

2021.08.19 XIE, Qing (Natasha)、Jessica QIN、Danchen LUO

It has been more than a year since April 1, 2020, when all limits on the foreign ownership of securities companies and fund management companies (FMCs) had been officially removed. Since then, the pace of opening up of China’s financing market has not been slowed by the global epidemic. On the contrary, foreign financial institutions have been increasingly landing in the Chinese market and kept extending the breadth of their businesses in China.

According to the public information on the official website of the China Securities Regulatory Commission (CSRC), since late July, the applications of a number of foreign institutions for conducting financial businesses in China have progressed substantially, including: Citibank (China) Co., Ltd. was approved for commencement of its securities investment fund custody business on July 29; the CSRC approved the establishment of Fidelity Fund Management (China) Co., Ltd on August 5; J.P. Morgan succeed in filing with the CSRC as the sole shareholder of J.P. Morgan Securities (China) Company Limited on August 6; and on the same day, the CSRC accepted the application of Standard Chartered Bank (Hong Kong) Limited, a subsidiary of Standard Chartered Bank, for the establishment of a securities company in China.

I  Foreign Majority-Owned Securities Companies, FMCs and Futures Companies

1. Foreign Majority-Owned Securities Companies

Following the 2020 launch of China businesses by J.P. Morgan Securities (China) Company Limited and Nomura Orient International Securities Co., Ltd., as well as Credit Suisse’s raising capital in Credit Suisse Securities (China) Limited to acquire controlling stake, DBS Securities (China) Limited, a majority-owned securities joint venture of DBS Bank, launched its business operations in China on June 18, 2021. Meanwhile, the existing foreign majority-owned securities companies have been expanding their business scopes. Below we offer a brief overview of the establishment, capital increase, and changes in business scopes of foreign majority-owned securities companies in the past year.

  • Newly-Established & Capital Increase

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  • Changes of Business Scope

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In addition to the above foreign institutions, we have come to know that certain foreign institutions, such as CitiBank, have been actively preparing to set up wholly foreign-owned securities companies in China.

2.Foreign Majority-Owned FMCs

BlackRock China Fund Management Company was approved by the CSRC for commencement of business operations on June 11, 2021, and a few days later, on July 1, 2021, BlackRock applied to launch its first public offering fund, the BlackRock China New Horizon Hybrid Securities Investment Fund, which has been approved by the CSRC on August 6, 2021, and therefore becomes the first mutual fund launched by a WFOE FMC. It is reported that such fund is a discretionary managed fund.

On August 5, 2021, FIL ASIA HOLDINGS PTE. LIMITED received an approval from the CSRC for the establishment of Fidelity Fund Management (China) Co., Ltd., which is currently in the process of being set up. Additionally, the following applications for FMCs are currently under review by the CSRC:

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3.Foreign Majority-Owned Futures Companies

On June 18, 2020, the CSRC approved the change in controlling shareholder of JPMorgan Chase Futures Co., Ltd. (the “JPMorgan Futures”), after which J.P. Morgan Broking (Hong Kong) Limited now holds 100% equity in the JPMorgan Futures, enabling JPMorgan Futures to become the first wholly foreign-owned futures company. Although no new application for the establishment of wholly foreign-owned or foreign majority-owned futures companies can be found through public sources, to our knowledge, certain foreign institutions have been actively preparing to set up foreign majority-owned futures companies in China.

II Wealth Management Subsidiaries of Commercial Banks (WMSs) & Subsidiaries of WMSs

On July 20, 2019, the Office of the Financial Stability and Development Committee of the State Council announced “11 measures” for further opening up the financial sector, under which foreign financial institutions are encouraged to participate in establish and invest in WMSs. Up to now, a total of four joint venture subsidiaries of WMSs have been approved to establish or commence operations, details are as follows:

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Additionally, on March 19, 2021, China Merchants Bank announced the Notice on Introducing Strategic Investors to Raise Capital in China Merchants Bank Wealth Management Co., Ltd., according to which China Merchants Bank proposes to introduce a strategic investor, JPMorgan Asset Management (Asia Pacific) Limited (the “JPMorgan Asset Management”), to raise capital in one of its wholly-owned subsidiaries, China Merchants Bank Wealth Management Co., Ltd. (the “CMB Wealth Management”). JPMorgan Asset Management will hold 10% shares in CMB Wealth Management after the transaction. 

As far as we know, certain WMSs have been actively looking for cooperation with foreign institutions. It is expected that cooperating with WMSs still remains one of the hottest avenues for foreign institutions to enter China's wealth management industry.As far as we know, certain WMSs have been actively looking for cooperation with foreign institutions. It is expected that cooperating with WMSs still remains one of the hottest avenues for foreign institutions to enter China's wealth management industry.

Our Observations

Whether CitiBank was approved to conduct fund custody business or DBS Bank’s majority-owned securities company was approved to start business operations, whether BlackRock’s wholly-owned FMC was approved to start business operations or FIL ASIA HOLDINGS PTE. LIMITED was approved to establish a wholly-owned FMC, all these cases indicate positive signals to the market that China continues to expand the opening up of the financial market. The accelerated expanding of business platforms of foreign institutions in the Chinese market also reflects their optimism about the prospects of China's financial market. In addition to the above-mentioned licenses, certain foreign institutions are also actively applying for fund custody licenses, while some others are interested in the fund administrator qualifications.

From a cross-border investment perspective, the number of QFIs has increased significantly since the issuance of the new QFI rules, while the approval procedures for QFI license have also speeded up observably; Furthermore, the resume of granting QDII quota, the expansion and normalization of the QDLP and QFLP pilot programs are all welcomed by foreign institutions.

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