Regulators widen mutual fund market

Effective April 2, foreign banks operating in China can offer local investors mutual fund products prepared by domestic fund management firms, the country's securities and banking regulators jointly announced on April 3, paving the way for the expansion of the fund market in the world's second-largest economy.

Prior to this, only Chinese commercial lenders with clean administrative and criminal records as well as annual profits exceeding 2 billion yuan ($322 million) over the preceding three years could place such funds, according to laws on the distribution of securities and investment vehicles issued by the China Securities Regulatory Commission (CSRC) in November 2004.

Under the newly-amended regulations, overseas commercial lenders with offices in China can apply for licensing to buy and sell such products on behalf of their customers in the country. Foreign institutions will be held to the same eligibility standards as their local peers, according to authorities.

Ahead of last week's announcement, several foreign banks had already taken steps to enter China's fund market, having been informed in advance that change was on the way. Information posted on the website of the Shanghai office of the CSRC shows that five foreign banks had submitted paperwork to conduct such operations as of March 11.

With Chinese laws requiring fund management companies to transact their products via independent financial institutions, a shortage of distributors has meant that mutual fund providers often can only accept a limited amount of capital for a short period of time, Zhu Xiuqing, an insurance analyst from Z-Ben Advisors, a Shanghai-based fund investment consultancy, told the Global Times.

China had 78 fund companies managing a total of 3.71 trillion yuan as of the end of February 2013, up from 66 firms overseeing 2.76 trillion yuan at the end of December 2011, according to figures released last month from the CSRC.

Yet, only one new local commercial lender, Bank of Ningbo, has been licensed to distribute fund products over the same timeframe, creating a total of 19 distributors by the end of February, CSRC data show.

"Opening the market to foreign lenders will satisfy local fund managers clamoring for wider distribution of their products," Zhu said.

Since Xiao Gang took the helm of the CSRC last month, this is not the first step the commission has taken to break up local banks' monopoly on the fund market.

From June 1, non-banking financial institutions, such as futures firms and insurers, will be allowed to engage in fund distribution as well, according to guidelines put forward by the CSRC on March 15.