The Role of Hong Kong in the Development of China's Fund ...

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The Role of Hong Kong in the Development of China's Fund ...

  1. 1. The role of HK in the development of the China fund management industry Presented by Au King Lun, Chairman of HKIFA at the American Chamber of Commerce Luncheon Hong Kong Investment Funds Association ( July 7, 2004 )
  2. 2. Discussion topics <ul><li>An overview of the China fund management industry </li></ul><ul><li>The role of Hong Kong in the development of the China fund management industry </li></ul><ul><li>How to further foster the relationships between the Mainland and Hong Kong </li></ul>HKIFA
  3. 3. An overview of the China fund management industry HKIFA
  4. 4. Regulatory framework <ul><li>1997: Interim Measures for the Administration of Securities Investment Funds </li></ul><ul><li>2002: Trial Measures for Open-ended Securities Investment Funds </li></ul><ul><li>2002: Rules for the Establishment of Fund Management Companies with Foreign Investment </li></ul><ul><li>2004: Securities Investment Funds Law </li></ul>HKIFA
  5. 5. Number of fund management companies <ul><li>As at the end of May 2004: 38 fund management companies in China </li></ul>HKIFA Source: CSRC
  6. 6. Asset size Closed-end funds : 87.7 billion yuan (US$10.7 billion) Open-ended funds: 197.2 billion yuan (US$24 billion) Source: CSRC (*As at May 31, 2004) HKIFA
  7. 7. Investor growth HKIFA (From various industry sources)
  8. 8. Investment products <ul><li>Based on % of FUM of the 80 open-ended funds: </li></ul>HKIFA (From various industry sources)
  9. 9. Joint ventures <ul><li>As at the end of May 2004, there are over 10 joint ventures. (Source: CSRC) </li></ul><ul><li>More JVs are in the pipeline. </li></ul><ul><li>WTO: maximum shareholding of foreign partner: </li></ul><ul><ul><li>current: 33%; </li></ul></ul><ul><ul><li>three years after accession (i.e. by the end of 2004), raised to 49%. </li></ul></ul>HKIFA
  10. 10. QFIIs <ul><li>Allow foreign financial institutions to invest in Chinese Renminbi denominated instruments </li></ul><ul><li>(e.g. equities, bonds and mutual funds) </li></ul><ul><li>Introduced in 2003, there are now 11 approved QFIIs (US$1.76 billion). Another dozen applications being reviewed by the Chinese authorities. </li></ul><ul><li>Success of QFIIs pave way for QDIIs </li></ul>HKIFA
  11. 11. QDIIs <ul><li>Opportunities for the fund management </li></ul><ul><li>industry: </li></ul><ul><li>National Social Security Fund </li></ul><ul><li>Insurance companies </li></ul><ul><li>Others </li></ul>
  12. 12. National Social Security Fund (“NSSF”) <ul><li>NSSF: 135 billion yuan (US$16.5 billion) </li></ul><ul><li>Six domestic fund managers have been appointed to manage part of the portfolio in December 2002. </li></ul><ul><li>The second batch will be appointed soon. </li></ul><ul><li>The NSSF has obtained approval in principle to invest overseas. </li></ul>HKIFA Source: BOC (As of May 2004)
  13. 13. Insurance companies <ul><li>Assets of insurance companies : over 1,000 billion yuan (US$122 billion) </li></ul><ul><li>Estimated that the insurance industry grows at about 30% each year . </li></ul><ul><li>Need for diversification to provide better match for liabilities . </li></ul><ul><li>April 2004: Rules have been promulgated allowing insurance companies to set up asset management companies to manage insurance assets . </li></ul><ul><li>Authorities have in principle approved plans for insurers to invest overseas . </li></ul>HKIFA Source: CIRC (As of May 2004)
  14. 14. Other potential <ul><li>Rapid economic growth and increase in household income </li></ul><ul><ul><li>GDP reached US$1.4 trillion (2003) </li></ul></ul><ul><ul><li>Per capita GDP exceeded US$1,000 </li></ul></ul><ul><li>Large bank deposit base </li></ul><ul><ul><li>Bank savings (individuals): 11.2 trillion yuan (US$1.4 trillion) (As at the end of April 2004) </li></ul></ul><ul><ul><li>Forex deposits (individuals & enterprises): US$147.4 billion (As at the end of April 2004) </li></ul></ul><ul><ul><li>Bank deposits rate below 2% vs. CPI of over 4% </li></ul></ul>HKIFA Source: National Bureau of Statistics of China
  15. 15. Other potential (cont’d) <ul><ul><li>SOEs reforms </li></ul></ul><ul><ul><li>Pensions reforms: </li></ul></ul><ul><ul><ul><li>Ageing population </li></ul></ul></ul><ul><ul><ul><li>Low investment returns from pension assets: n eed for diversification </li></ul></ul></ul><ul><ul><ul><li>Corporate supplemental pensions : 30 billion yuan (US$3.7 billion); expect to increase 50-80 billion yuan each year and reach 500 billion yuan (US$61 billion) by 2010. </li></ul></ul></ul>HKIFA Source: MOLSS (As of June 2004)
  16. 16. The role of HK in the development of the China fund management industry HKIFA
  17. 17. Role of Hong Kong <ul><li>As a capital formation centre for China </li></ul><ul><li>As a key source in providing technical expertise </li></ul>HKIFA
  18. 18. 1. As a capital formation centre for China <ul><li>Raise funds for investment in the capital markets in China (e.g. QFIIs) </li></ul><ul><li>Help SOEs and private enterprises to list in HK </li></ul>HKIFA
  19. 19. 1. As a capital formation centre for China (cont’d) <ul><li>Over the past ten years, US$100 billion have been raised by Mainland-related enterprises in Hong Kong </li></ul><ul><li>86% of Mainland Chinese companies listed overseas are listed in HK </li></ul><ul><li>HK leads in fund raising capability, international status, market efficiency, availability of professional services, regulatory framework and quality of investors. </li></ul>HKIFA Source: HKEx
  20. 20. 2. As a key source in providing technical expertise <ul><li>Investment: </li></ul><ul><ul><li>International investment management expertise </li></ul></ul><ul><ul><li>Risk management </li></ul></ul><ul><li>Marketing and distribution: </li></ul><ul><ul><li>Channel management </li></ul></ul><ul><ul><li>Product development and innovation </li></ul></ul><ul><ul><li>Investor education and financial planning </li></ul></ul><ul><ul><li>C lient servicing </li></ul></ul>HKIFA
  21. 21. 2. As a key source in providing technical expertise (cont’d) <ul><li>Backoffice and support function : </li></ul><ul><ul><li>Information technology know-how </li></ul></ul><ul><ul><li>Personnel management: recruitment and training </li></ul></ul><ul><li>Regulatory : </li></ul><ul><ul><li>Regulatory framework </li></ul></ul><ul><ul><li>Compliance </li></ul></ul><ul><ul><li>Corporate governance </li></ul></ul>HKIFA
  22. 22. How to further foster the relationships between the Mainland and Hong Kong <ul><li>HKIFA’s proposals: </li></ul><ul><li>1) To allow HKSFC-authorized funds to be used as vehicles for QDII purposes </li></ul><ul><li> - initial stage: HK-domiciled funds only </li></ul><ul><li> - later: extend to all HKSFC-authorized funds </li></ul><ul><li>To allow HKSFC-authorized funds to be marketed in the Mainland </li></ul><ul><ul><li>- Develop a special share class, e.g. C-class, such that subscriptions and redemptions are all carried out in the Mainland. A cost-effective investment option to FX deposits holders in the Mainland </li></ul></ul><ul><li>3) To continue maintaining dialogue with the counterparts in China (via the HKIFA China Subcommittee) </li></ul>HKIFA
  23. 23. Thank you Q & A HKIFA

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