Taking the lead
(CHANG TIANLE)
11/09/2001
Foreign-fund managers have quickly moved into the fledgling Chinese stock market in the hope of benefiting from the rising market activity as China gears up for entry into the World Trade Organization. Many are expecting that China's asset management industry will be integrated into the global financial system.JPMorgan Fleming Asset Managem ent has surpassed its peers, having worked closely with Shanghai-based Hua An Fund Management Co in the last two years. The two companies established a working committee in Shanghai last week to pave the way for a joint venture fund management firm. "JPMorgan Fleming would like to become one of the first JV fund management companies in China," said William Harrison, president and chief executive officer of JP Morgan Chase, which owns JPMorgan Fleming. "Given the opportunity, we'd love to invest as much in the JV as we can." China's tremendous stock market potential and lack of institutional investors are what appeal to foreign fund managers. According to Morgan Stanley, China's total stock market capitalization is expected to top at least $1.5 trillion by 2010 from the present US$500 billion. The expectation is based on a US$3-trillion forecast for China's gross domestic product (GDP) for 2010 and the fact that the stock market capitalization usually accounts for 50 to 150 per cent of the country's GDP. More institutional investors and well-managed listed companies will help the local stock market, analysts say. Foreign-fund managers are now blocked from China's fund management industry. But following entry into the WTO, foreign securities houses will be allowed to take a 33 per cent stake in a domestic securities house. The figure will go to 49 per cent in three years. Many foreign securities firms have been investing in China by means of technical support and consultancy. As Hua An's foreign co-operation partner, JPMorgan Fleming provided all-round technical support that ensured the successful launch of China's first open-ended fund in September. Shenzhen-based China Southern Fund Management sealed a co-operative agreement with global banking giant Hong Kong and Shanghai Banking Corp (HSBC) to share information and experience on fund management before it launches China's second open-ended fund. In July, Deutsche Asset Management signed a letter of intent with Da Cheng Fund Management to co-operate strategically in the China fund management market. Long Xiao Bo, chief executive officer of Da Cheng said at the signing ceremony that the two firms will co-operate in areas including investment management, product development and marketing strategy. Singapore's United Overseas Bank (UOB) and Germany's Allianz Group have decided to team up to enter the Chinese mainland pensions and fund management industry as well. They are now looking for a local partner to join them. The two banks signed a memorandum of understanding last year to form a 50-50 joint-venture. Other firms rumoured to be involved in negotiations to form JV securities firms include Fortis with Haitong; Lynnais with Xiangcai; and Fullgoal with Bank of Montreal. Fund managers said such a co-operation creates a win-win situation. "China's fund management industry is still in its infancy and will have to deal with many new issues and challenges," said Han Fanghe, general manager of Hua An. "And with China's imminent entry into the WTO, the introduction of foreign expertise and management style will greatly assist us in facing the WTO challenge." He hopes such co-operation will re-establish Shanghai as a leading international financial centre. Hua An and JPMorgan Fleming's efforts also received positive feedback from the China Securities Regulatory Commission (CSRC), the watchdog of China's securities industry. Zhang Ning, deputy director of CSRC Shanghai Regional Office, said the co-operation between Hua An and JPMorgan Fleming provided a practical model for JVs. SCRC claimed earlier that the country will take measures designed to encourage foreign companies to explore domestic financial markets by launching their JVs with domestic companies. It is unclear when these steps will be taken or what they will entail. "I firmly believe that all China's promises upon the WTO accession will come true, and I personally hope we can start a JV as soon as possible," Han said.
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