China’s Asset Management Industry


Asian asset management’s inflection point

Asset Management in China

China: The new frontier for foreign asset managers

The Asset Management Industry in China: Its Past Performance and Future Prospects


Asset Management in China and Asia are small but grow fast [0] 

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The biggest growth factor: Economic Growth

Studies shows investment assets are closely tied to GDP growth
–  Asia’s assets are likely to outpace any other region’s as Asia’s leading economies are growing twice as fast as advanced economies’ [1]

Burgeoning demand for asset management in Asia

  1. growing wealth
  2. low deposit account rates
  3. inadequate pension funds

3 drivers of growth


Financial market liberalisation is a game changer.

  1. internationalises the renminbi
  2. opens its domestic bond market
  3. liberalises interest rates
  4. launches its Shenzhen-Hong Kong Stock Connect scheme [2]

2.‘Financial deepening’

China’s onshore bond market is the world’s third-largest, and its credit market has become the second-largest.

Also see Research on China

  • China’s mutual fund industry will sustain its rapid growth as its capital markets develop further.
  • The completion of China’s interest rate liberalisation and further capital-market development foresee continuing migration from traditional term deposits into WMPs. [12]

3. Pensions time bomb

Singapore, Hong Kong, South Korea, Thailand and China are seeing their populations ageing fastest. China’s working age population is beginning to decline.

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  • Pension funds’ total assets are likely to increase materially as China’s population ages and the pension system expands its coverage.



1. mutual fund products have yet to be widely accepted by investors as savings vehicles beyond the high net worth clients / In China, professionally managed assets such as pensions and life assurance recently made up only 10% of household assets. [3]

2. the region’s sharp financial corrections and regulatory surprises are likely to mean that the path of future growth is far from smooth.

– Investment education is the key.

There is already an explosion in online fund sales, highlighting the power of digital distribution channels.  [13]


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– However, its effect on traditional funds are doubted

one could doubt if the case of the boom of MMF can be repeated on other mutual fund product. The reason is that the investors in China may have a improper understanding about the risk of the products they hold.

(WMPs from banks and securities firms have grown significantly, however, there is widely publicized concern that some customers do not understand the risks involved. Regulation introduced may curtail WMPs. )


Changing investor appetites

1.local bias [4] -> foreign market, as

Asian stock markets are very poor proxies for their fast growing economies, so it is not always easy to invest in the growth using local markets.

2.development of infrastructure as an asset class [4.1]



China: Economic growth and AuM

*China’s GDP has surged from RMB 6 TN in 1995 to RMB 60 TN in 2013.
*China’s asset management industry has also grown rapidly from RMB 0.5 TN in 2005 to RMB 4 TN in 2013. (9 TN in 2015).
*But only 3% of China’s RMB 145 TN financial assets are held in mutual funds.

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Liberalisation also has flip side

+++  Market liberalization has opened the scene to many new players
(e.g. new FMCs affiliated with banks, securities firms, trust companies and insurance firms)

— However, liberalization has not been entirely conducive, many players have focused on “grabbing policy resources” for developing regulatory-driven products, knowing that there may be limited time for such opportunities lapse. (e.g. Security companies, FMC’s subsidies)

The real problem behind is:
continuing dominance of bank financing over equity financing

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Traditional FMC is daunting

1.Volatile and disappointing market

Chinese stock markets are very poor proxies for its fast growing economies

As of year-end 2013, more than a third of China’s 90 fund management companies were loss-making, with most fund products below RMB 50M statutory minimum AuM.

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In 2007, total AUM for mutual funds reached RMB 3 trillion, and most were stock funds. After that, the AUM declined to RMB 2 trillion, and then recovered back to RMB 3 trillion after six years.

2. Banks control the channel

Several of the fastest growing FMCs are affiliated to major banks.
– Given the retail orientation of the current market, these bank-affiliated FMCs have benefited from access to their parents’ distribution channels.

And FMCs face internal competition from deposits, bank-trust wealth management products (WMPs) and insurance products, which seems provide high and safe return .

A competition between deposit, WMPs and AuMスクリーンショット 2016-09-01 14.12.34

3. QDII has had a difficult start.

4. Investors have extremely limited loyalty for any given firm or product.


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3 key drivers for dramatic growth in China

1.the emergence of institutional investors given
i) relaxation of investment constraints,
ii) tax incentives,
iii) aging population hunting for higher yield.

2. household’s evolution from saving to investing
(Chinese households tend to keep their saving in low yielding bank deposits. Of RMB 45 TN in household savings, mutual fund penetration is only 7% (2013))

But it is important to ask

Do households concerned about the threat of inflation eroding savings?
Is lack of alternative investment opportunities the reason of Majority of savings in bank deposits ?
Do that means development of the fixed income and multi-asset funds?

3. RMB internationalization as full convertibility should significantly increase both outward and inward investment

(Foreign investor can currently 2013 access Chinese markets only through the QFII, RQFII and the Qualified Foreign Limited Partner(QFLP) programs. When the market is eventually opened for foreign investors, removing all constraints on liquidity and repatriation, this should trigger changes on global benchmark weights and significant new inflows over time)





Favorable macroeconomics for asset management in China

While the media focus on China’s economic slowdown and market volatility, international asset managers should keep their sights on the China market. In fact, asset-management opportunities in China continue to grow, nurtured by strong long-term economic fundamentals, increasing sophistication and deregulation, as well as positive cross-border trends.

A. a rate of 6.9% is still very healthy, related to its international peers and its base

B. with income per capita increasing by 34% over the last five years, the number of households with income above USD 30,000 doubled. The same is true for the number of high-net-worth individuals (HNWIs). [5]  + lowering deposit rate and WMP’s return
-> Slowly undergoing a shift from saving to investing, Chinese people are looking for new investment opportunities.

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C. Faced with historically low yields in the savings market (currently 1.5% for a one-year deposit), many Chinese investors are willing to shift their portfolio toward riskier asset classes such as stocks, while recent market volatility has highlighted the need for diversification.

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D. the structural aging of the Chinese population is also impacting the asset management market positively


Ongoing deregulation
-> provides foreign companies with increasingly favorable market-entry opportunities in China

Over the past two years, Chinese regulators have unveiled significant liberalization measures:

  1. addressed concerns over capital markets accessibility to encourage capital inflows and offset the drop in foreign exchange reserves
  2. renminbi convertibility

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Areas with growth potential

1) Domestic market

1a) Product innovation

i.Money market funds: a China-specific trend

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ii. Alternatives and fixed-income funds: potential rising stars to come

demand for sophisticated strategies is expected to increase. Asset classes such as quantitative products, private debt, hedge funds and private equity are still of limited supply domestically but are highly sought after by HNWIs, Ultra High Net Worth Individuals (UHNWIs) and institutional investors.

Overall, product innovation keeps increasing in China, nurtured by deregulation and market fluctuations [6]. In this context, alternatives and fixed-income products appear much more appealing than in the past, especially for the more sophisticated institutional clientele

1b) Client mix dynamics

i. Massive growth of pension funds [7]

ii. Insurance mandates

2) Cross-border market

2a) Demand for offshore investments from Chinese investors [8]

2b) Demand for investments in Chinese assets from global investors [9]

Fundamentally, in the coming decade, the “greater-China” region will no longer be seen as a source of exposure to emerging markets, but rather as a distinct asset class, with Chinese A-share investments making up a significant part of this allocation.



1) Evolving legal entity status requirements put foreign asset managers in front of strategic choices on current vs. future local setup [10]

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2) The distribution conundrum [11]



In the past five years or so, Asia’s (ex Japan and Australia) growth has been second only to Latin America’s, but investment fund assets remain a small proportion of the global total


The IMF World Economic Outlook, January 2016, forecasts 2017 GDP growth of 2.1% for advanced economies, versus 6.0% for China, 7.5% for India and 5.1% for ASEAN.


The Mutual Recognition of Funds between Hong Kong and China, launched in July 2015,is a form of liberalisation, has started slowly but shows great promise. The scheme gives Hong Kong-based asset managers approved under it access to Chinese investors. Similarly, it allows Hong Kong investors to buy Chinese funds directly, and initially this ‘southbound’ route has proved the fastest growing. At the end of 2015, a batch of seven funds was approved under the scheme.Over time, it’s likely that a large number of Hong Kong-domiciled funds will be sold into China. Equally, Chinese asset managers will also market into Hong Kong.


In Singapore, professionally managed assets such as pensions and life assurance recently made up almost 50% of household assets.12 This level is broadly equivalent to the US. In Malaysia, they’re close to 60%.


While it used to be thought that Asian investing had a local bias.
Historically, Asia’s investors have been credited with two characteristics – a trading mentality and an appetite for income. The former explains the preference for structured products that reduce uncertainty by fixing the maximum loss. The latter supports the popularity of income funds, especially given the need to save for retirement and education in countries with underdeveloped pension systems. But shifting market conditions are influencing demand. In 2015, diversified multi-income funds sold well. Since the China-driven market volatility in early 2016, liquid alternative funds have been in demand due to their absolute return qualities. Financial deepening in countries such as China, with its newly open bond markets will make manufacturing these products locally easier.


The single biggest change in the next 10 years could be development of infrastructure as an asset class. China alone plans to invest up to US$1tn in its ‘One Belt, One Road’ scheme to construct ports, roads, railways and pipelines stretching across Asia, west Africa, the Middle East and into Africa. With AIIB’s support, the result would be a sizeable new set of Asian assets for asset managers to invest in.


Capgemini’s World Wealth Report 2015 published estimates that China is home to 890,100 HNWIs, or one HNWI per 1,000 citizens (by comparison, India’s ratio is 0.2/1,000 and the US’s 14/1,000)


Equity market downturn since June, 2015, retail and institutional investors have quickly come to understand the need for more balanced investment portfolios, causing them to seek greater diversification in the domestic market. Therefore, demand for non-equity, high-yield products is on the rise.


China’s pension system is still at a nascent stage of development. Funds from the National Social Security Fund (NSSF) and Enterprise Annuity Funds (EAP), however, have seen significant growth: from 2013 to 2014, EAP’s AuM increased by 50%, driven by retirement saving needs. Among all institutional investors, pension funds appear to be an attractive client segment to serve.

In 2015, China set up an occupational pension scheme (OA) for government employees – a type of supplementary pension similar to the 401k in the US that includes payments by both government departments and employees. It is estimated that this new scheme will add RMB 150 billion (USD 24.12 billion) annually into the pension industry from 2015 to 2020.

Given the level of uncertainty in Chinese financial markets today, the government’s pension funds are increasingly willing to outsource management to professional fund managers. We estimate the outsourcing ratio to be 25% for the NSSF and 95% for EA.


According to the P2P (peer-to-peer) lending platform CreditEase, in the past four years the proportion of mainland HNWIs’ holdings of foreign assets has doubled from 20% to 40%, and that of UHNWIs has risen from 50% to 60%, sparking the growing demand for offshore investments.


Despite China’s volatile equity market, several players have recently sought out higher quotas. For example, Vanguard, Wellington Management and Hyundai Investments have gathered RMB 20 billion (USD 3 billion), RMB 2.5 billion (USD 0.4 billion) and RMB 3 billion (USD 0.5 billion), respectively, during the first two months of 2016. Indeed, the main function of the quota will be to add A-share exposure to its emerging-market funds.


With 45 of the 101 FMCs in China existing as Sino-foreign joint ventures (JVs), setting up a JV with local Chinese partners has long been the status quo for foreign asset managers seeking to access the Chinese market. However, with Aberdeen and Fidelity launching Wholly Foreign-Owned Enterprises (WFOEs) in China in 2015, incumbent foreign players have started to take some interesting new paths. Russell Investments, for example, disposed of its stake in its JV, preferring a shift toward a standalone WFOE model while Franklin Templeton has voiced its intention to set up a new WFOE in addition to its existing local JV


Online distribution of funds is often seen as the solution to the challenges of fund distribution in China. Recent events, such as the rise of online fund supermarkets in other Asian markets, tend to suggest that the near-term potential for online distribution is far greater than previously assumed. Online distribution of funds can be divided into two categories: the online platforms of fund companies and online distribution over third-party platforms, which comprises 101 registered players in China in March, 2016.


Commercial banks’ WMP offerings – pooled savings products that offer a higher yield than deposits – have grown exponentially in recent years.Outstanding WMPs rose at a compound annual growth rate of 55% from 2009-14, reaching CNY 23tn as of end-2015.


More than half of funds in China are now sold online, according to Z-ben’s estimates, up from just 5% in 2012. But these are almost entirely money market funds such as the popular Yu’e Bao fund, which are sold through platforms such as Alibaba and WeChat. Investors treat them as cash accounts and only invest for short periods of time. The growing popularity of China’s WMPs, which are longer term investments, suggests that savers can graduate to buying longer term investments online.