With China liberalizing access to its asset management industry, foreign players have significantly expanded their onshore footprints by setting up wholly foreign-owned fund management companies, Sino-foreign wealth management joint ventures (JVs), as well as wholly foreign-owned and JV insurance asset management companies. In addition, local regulators have been taking initiatives to launch various cross-border scheme plans, allowing offshore managers to tap the market’s huge investable assets, according to Cerulli Associates’ newly released report, Asset Management in China 2021: Seizing Opportunities Across Diverse Segments.

In September of 2021, authorities in China officially rolled out the long-awaited Guangdong-Hong Kong-Macau Greater Bay Area Wealth Management Connect (GBA WMC). The program is a cross-border investment scheme offering financial products distributed by banks in nine Mainland cities in the Guangdong province, and two Special Administrative Regions of Hong Kong and Macau. Under the proposed implementation rules, eligible northbound products offered by mainland producers cover low- to medium-risk rated net asset value-type of banks’ wealth management products and mutual funds; Hong Kong-domiciled southbound products include funds authorised by the Securities and Futures Commission, bonds, as well as certain deposits, which also need to be assessed by banks as “non-complex” products with low- to medium-risk ratings. Whether southbound or northbound, the aggregate investment quota stands at RMB150 billion (US$23.2 billion), with a quota of RMB1 million applied to individuals.

Other cross-boundary liberalization measures announced last year and this year include the revamped Qualified Foreign Institutional Investor (QFII) and Renminbi Qualified Foreign Institutional Investor (RQFII) schemes, cross-listings of exchange-traded funds (ETFs) between Mainland China’s stock exchanges and those in Japan, Hong Kong, and Korea, new Qualified Domestic Limited Partner (QDLP) pilot schemes in Hainan, Chongqing, Guangdong (excluding Shenzhen), and Jiangsu, as well as updated Qualified Foreign Limited Partner (QFLP) measures in Beijing and Shenzhen. In particular, the revamped QFII and RQFII schemes have the widest investment scope available to foreign institutional investors to access onshore investments; the inclusion of private investment funds could also benefit wholly foreign-owned enterprise (WFOE) private fund managers (PFMs) by possibly allowing parent companies to channel funds from offshore to help these PFMs raise assets for onshore private security fund launches.

“The GBA WMC scheme is likely to be better received among qualified mass affluent and middle-class, instead of high-net-worth (HNW) investors, as many HNW individuals in Guangdong province already possess private banking accounts in Hong Kong, and some entrepreneurs have accumulated sufficient overseas assets for offshore investing,” says Ye Kangting, senior analyst. “While initial two-way capital flows could be small, fund managers who see long-term growth potential in the scheme should understand investors’ product preferences, deepen collaboration with both onshore and offshore distribution banks, and enhance their brands by building or leveraging on strong research and investment capabilities, in order to stand out from the competition.”