Chinese regulator gives OK for joint venture with BNP

The China Securities Regulatory Commission (CSRC) has given the go-ahead for a joint venture fund management company to be created between Shenyin and Wanguo (SW) and BNP Paribas Asset Management.

The CSRC has approved the 'preparatory' stage for the joint venture. An application for a licence to operate is planned for October, once the two companies have completed the bricks and mortar structures for the operation.

The new company, which will be called SW BNP Paribas Asset Management, will be registered in Shanghai with a capital of RMB100m. Shenyin & Wanguo will hold a 67% stake in the joint venture while BNP PAM will own the remaining 33%. The plan for the venture is to be active in traditional and structured fund products, combining BNP's experience in asset management with SW's local sales network and market knowledge.

The savings rate in China, which has a population of 1.2 billion, is estimated to be one of the highest in the world: in the next five to 10 years it is pegged to replace Korea as the second largest market in Asia after Japan.

Some consultants estimate that by 2007, $48bn of China's savings will be channelled into investment products.

"The Chinese currently have few avenues to place their money, apart from low-rate deposits in banks," said Jean François Bourdeaux, head of new markets at BNP PAM in Paris.

Investment products are relatively new in China: so far the market has had access to closed-end funds, and more recently open-ended products offered by domestic companies.

"The middle class is looking for investment opportunities," said Bourdeaux.

Investment products are restricted to investing only in Chinese companies, and Chinese-denominated assets.

However, in future this may change, as the Chinese Central Bank, which holds around $345bn in reserves, may seek buying opportunities in foreign assets. If this happens, it will quicken the process for retail exposure to foreign assets as well, noted Bourdeaux.

Foreign asset managers have been seeking similar opportunities since China's accession to the World Trade Organisation in 2001. According to the joint venture rules, a foreign partner can hold up to 33% of the venture. Between 2006-07, allowed foreign ownership will be increased to 49%.

SW is one of the pioneers in the securities industry in China. In the past few months, it made advances in the fields of OTC share transfer, investment consulting services and bond underwriting. In June 2003 SW successfully obtained the agency mandate of the first-ever Qualified Foreign Institutional Investor (QFII) in China.

The firm has a registered capital of RMB4.216bn and boasts a network of 109 branches and 32 investment service centres located in 44 large and medium-size cities all over China.

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