On January 3, 2020, the China Banking and Insurance Regulatory Commission (the “CBIRC”) published the Guiding Opinions on Promoting the High-Quality Development of the Banking and Insurance Industries (《关于推动银行业和保险业高质量发展的指导意见》) (with the issuance date contained therein, December 30, 2019, the “Guiding Opinions”). The Guiding Opinions encourage foreign funded institutions to participate in the wealth management business in various aspects, without prejudice to the policies prescribed in the “11 measures” issued by the Office of Financial Stability and Development Committee of the State Council in July, 2019 (policies known as the “11 Measures”(国11条)):

(1) Foreign funded banks are encouraged to collaborate with their parent banks in the featured business including the wealth management business

In 2017, in the Circular on Carrying on Certain Businesses by Foreign Funded Banks (《关于外资银行开展部分业务有关事项的通知》) promulgated by the General Office of the former China Banking Regulatory Commission, locally incorporated foreign funded banks and foreign bank PRC branches are explicitly allowed to cooperate with their offshore parent bank groups in areas of offshore bond issuance, listing, acquisition and financing in compliance with the PRC law for the first time. Those business collaboration rules are further incorporated into Article 31 of the Implementation Rules of the Regulations of the PRC on the Administration of Foreign Funded Banks (《中华人民共和国外资银行管理条例实施细则》) newly amended on December 18, 2019.

When it comes to the Guiding Opinions, the business collaboration in financing (including trade finance, finance granted to small and medium sized enterprises and commodity finance) is further encouraged and the business collaboration in the wealth management business is newly pointed out.

Due to the strict foreign exchange restrictions on the cross-border investments intended to be made by the onshore individuals, we understand that at this stage, the business collaboration in the wealth management business may mainly cover the foreign exchange denominated asset management products and the QDII products issued by onshore institutions and the offshore parent banks may provide business support in the custody, valuation, portfolio advisory, structuring of structured products and so on.

(2) Foreign financial institutions are encouraged to make equity investment(s) in the wealth management subsidiaries of commercial banks (“CB WM Subs”)

In respect hereof, the Guiding Opinions repeated the same as prescribed in the 11 Measures. As of the date of this article, nearly 30 banks announced the establishment of the CB WM Subs, among those banks, some further expressed their willingness to attract the investment(s) from the strategy investor(s) at a proper stage. Since the market environment and historical development of the asset management industry in the onshore market vary from those in the offshore market, there might be some differences in the asset management industry between the different markets. Foreign investment in the CB WM Subs would provide the foreign investors with a good opportunity to reach and understand the PRC asset management industry at a relevantly low cost.

(3) Foreign asset management institutions are allowed to set up foreign-controlled joint venture wealth management companies (“JV WM Cos”) with subsidiaries of domestic funded banks or insurance companies

In respect hereof, the Guiding Opinions also repeated the same as prescribed in the 11 Measures. On December 20, 2019, Amundi and BOC Wealth Management received the approval for the preparatory work from the CBIRC to establish the first foreign-investor controlled JV WM Co, in which Amundi will hold 55% of the total equity interests and BOC Wealth Management will hold the rest 45%. JV WM Cos are supervised by the CBIRC and may conduct the asset management business as approved by the CBIRC and issue both publicly offered asset management products and privately offered asset management products.

(4) It is intended that foreign financial institutions with the wealth management business may be attracted to enter into the onshore market

It is the first time that this high-level market access policy is set out in a publicly available government document. Currently, it is not clear whether there is any further opening-up policy in substance in addition to the foreign direct investment policies indicated in (2) and (3) above and we shall wait and see whether there would be further implementation rules in relation thereto.

Apart from encouraging foreign institutions’ participation in the wealth management business, the Guiding Opinions further require that the new asset management rules shall be implemented in order to “resolve the shadow banking risks in an orderly manner”, and “strongly combat illegal financial activities” and “close down and ban the unlicensed institutions conducting the financial business and unlicensed financial activities without hesitation”. Those measures preventing and resolving the financial risks, in and by themselves, create the necessary conditions for establishing a good market environment.

Furthermore, in the areas that are not regulated by the CBIRC (but by other regulators), foreign funded institutions may also conduct the asset management business by making equity investment(s) in securities companies (the foreign shareholding limit will be removed by December 1, 2020), public fund management companies (the foreign shareholding limit will be removed by April 1, 2020), futures companies (100% foreign ownership is allowed) and/or private fund managers (100% foreign ownership is allowed), and may be involved in the wealth management business by obtaining the “fund distribution qualification” and/or the “mutual fund investment consulting business qualification”.

A great business opportunity for foreign funded institutions now comes, with the support of the further opening-up policies, as the wealth management and asset management business has gained more and more attentions from the regulators and the asset management industry has just been restructured based on the new asset management rules, while the eagerness of the onshore individuals on the wealth preservation and growth is much stronger than ever.