Foreign asset management companies struggle in China

In 2019, when Beijing began to relax restrictions in China’s asset management sector, it was seen as an opportunity for foreign companies to tap into China’s burgeoning market. Several wholly owned foreign fund management companies were approved by the China Securities Regulatory Commission, reflecting China’s willingness to open up its asset management industry. However, many foreign firms have faced challenges in gaining a significant foothold in China due to competition with local companies and concerns about data transfer laws.

Competition from established local asset managers has been a major obstacle for foreign firms. These local players have diverse product offerings, strong track records, and brand recognition among local investors. They have also developed extensive distribution networks and close partnerships with fund distributors. As of June, the combined market share of major foreign firms in China was less than 1% of the total net assets of China’s funds.

The turbulent market conditions since 2021 have added to the challenges faced by foreign asset managers trying to make a mark in China. The market’s unpredictability has made it difficult for them to establish a strong presence with local investors.

Data restrictions have also been a significant concern. China’s personal information protection law, implemented in 2021, has limited the sharing of data between foreign financial services firms operating in China and their head offices. These restrictions on cross-border data transfers have made it increasingly complex for global firms to operate efficiently.

As a result, foreign asset managers have found it challenging to adapt to the way things are done in China. While some global firms like BlackRock and Fidelity have established a presence in China, others have not made the move due to the complexities involved.

However, there have been regulatory efforts to ease access for foreign investors in China’s asset management sector. The China National Administration of Financial Regulation issued draft rules in July aimed at relaxing access requirements for foreign investors. These rules may eliminate asset requirements for foreign financial firms investing in asset management companies and even allow foreign non-financial institutions to invest directly in Chinese asset management firms.

This regulatory progress offers opportunities for investors from various jurisdictions, including smaller companies, to enter the Chinese asset management market. While challenges remain, there is optimism that China’s financial sector is moving towards greater openness, albeit cautiously and prudently. The ongoing dialogue between regulators and industry participants indicates a growing understanding of issues such as data transfer controls, providing reasons for cautious optimism in this evolving landscape.