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China’s fund management companies are aiming for global expansion, thanks to new regulations in the PRC

In 2007 and 2008, the China Securities Regulatory Commission (CSRC) issued two new regulations allowing Chinese domestic fund management companies (FMCs) to invest overseas and to set up Hong Kong (HK) establishments to serve both inbound and outbound investments.

In June 2007, the CSRC issued the Trial Measures for the Administration of Overseas Securities Investment by Qualified Domestic Institutional Investors (QDII measures) to regulate investment in overseas securities markets by qualified Chinese FMCs and securities firms. Prior to the release of the measures, only banks and trust companies could invest in overseas securities.

Under the QDII programme, FMCs are allowed to invest in overseas equities, debt securities, bonds, bank deposits and derivatives. They are not, however, allowed to invest in property and precious metals, nor to underwrite securities. FMCs are permitted to invest in more diversified financial products under the QDII measures than their QDII bank counterparts.

The QDII measures have been issued as part of the CSRC’s goal to nurture the growth and development of domestic securities institutions and to enable Chinese fund managers and financial institutions to gain familiarity with global finance and practices in international capital markets, which could help the further development and internationalisation of the Chinese financial services sector. Another objective of the QDII measures is to reduce excessive liquidity in the Chinese stock market, diversify risks and investment for Chinese investors and reduce pressure for RMB appreciation.

Since the issue of the QDII Measures, seven FMCs have launched their QDII funds.

In April this year, the CSRC issued the regulations for securities investment fund management companies to set up establishments in Hong Kong to permit Chinese domestic FMCs to serve as a gateway for cross-border investments into and out of China.

Blueprint for expansion

The CSRC laid down the blueprint for Chinese FMCs to expand their business overseas in the Regulations which provides that HK establishments can be in the form of branch company, office or subsidiary or other form allowed by the CSRC.

To set up a HK establishment, a fund management company needs to meet the requirements on establishing branch institutions by FMCs as specified in the Measures for the Administration of Securities Investment Fund Management Companies, fall in line with the internal decision-making procedure for companies, have clear business objective and planning, have proper arrangements on the administration of the HK establishment and be capable of remaining in good financial condition after making financial contribution to the HK establishment.

Application material to be submitted to the CSRC includes:

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