Foreign participation in fund management

Very recently, JP Morgan Fleming Asset Management, who having worked closely with Hua An Fund Management Co. in the last two years, established a joint working committee with Hua An in Shanghai to pave the way for setting up a joint venture fund management company.

Currently, 14 Chinese securities brokerage firms or fund management firms have secured foreign strategic partners to co-operate in fund management business. During the last couple of years, the cooperation efforts by Chinese and foreign partners have focused on technical support and consultancy covering middle and long-term strategies, corporate governance principles and risk control mechanisms. Many foreign companies have been involved in negotiations to form joint venture fund management firms.

This January, CSRC, the securities market regulator, issued an Opinion on Fund Management Companies Carrying out Foreign Technology Cooperation ("Opinion") for the purpose of facilitating fund management companies' use of experience and advanced technologies from the more mature overseas fund markets. The Opinion encourages an evaluation from foreign cooperative partners on corporate governance, corporate internal control and risk management mechanisms, and evaluations of such documents as Fund Establishment Contracts, Fund Prospectuses and Articles of Association, and the documents to be attached to application materials when application materials for establishing funds or establishing fund management companies are submitted for approval.

WTO liberalisation on fund management

Foreign firms are now permitted to hold up to 33.33% of a joint venture managing securities as of China's accession to the WTO and up to 49% interest has been promised within three years after accession.

The CSRC has been working on joint venture securities investment fund management provisions that will serve as the guidelines for foreign participation in this industry in the future.

Foreign participation in venture capital

Foreign investors have permitted to establish locally based funds. The Ministry of Foreign Trade and Economic Cooperation (MOFTEC), the Ministry of Science and Technology and the State Administration for Industry and Commerce issued a notice announcing that foreign companies would be allowed to set up wholly owned or Sino-foreign cooperative venture capital firms in China. Although foreign exchange balancing cannot be required following WTO accession, the question of re-patriation of profits remains. According to the notice, foreign-invested venture capital firms will be able to withdraw their capital through share transfers, buybacks or selling their shares in the company if and when it becomes listed on a domestic or overseas stock market.

Before applying to set up wholly owned or Sino-foreign cooperative venture capital firms in China, at least one of the foreign investors must have managed assets of over USD$100 million in total and invested over $50 million of these assets in the past three years and own at least 3% of the new firm's capital. On top of that, one foreign investor must have more than $100 million in net assets and must agree to put at least $20 million in the new venture in China.

For further information on this please contact Luke Filei on [email protected] or +86 10 6590 0389 in Beijing or +86 21 6289 6363 in Shanghai.