Diversified structures to offer more global wealth management products

Foreign financial institutions are accelerating their deployment in China's asset management sector through the establishment of wealth management joint ventures as the country further opens up its flourishing financial market.

During the process, wealth management JVs could see gains from the advanced experience of their foreign shareholders in a number of areas, including cross-border investment as well as environmental, social and governance investing, to build up differentiated competitive advantages, experts said.

French bank BNP Paribas has recently obtained Chinese regulatory approval to set up a wealth management JV in the country. The company will be jointly funded and established, with BNP Paribas' asset management unit contributing 51 percent of the funding and Agricultural Bank of China Wealth Management Co, a wholly owned subsidiary of Agricultural Bank of China, contributing 49 percent.

BNP Paribas has joined four other global companies — Amundi, BlackRock, Schroders and Goldman Sachs — in making their way into China's fast-growing asset management market.

In addition, Deutsche Bank is in talks with the wealth management unit of Postal Savings Bank of China to create a JV, Beijing-based Caixin Media reported. The German bank declined to make further comment as discussions are still underway.

By the end of June, the balance of China's wealth management products that have not yet reached maturity stood at 29.15 trillion yuan ($4.02 trillion), up 12.98 percent year-on-year, according to the China Banking Wealth Management Registration and Depository Center.

Zeng Gang, director of the Shanghai Institution for Finance &Development, said: "Establishing JVs is an effective measure for commercial banks' wealth management units to attract foreign investment and learn from advanced international experience. It is also a useful exploration in promoting the two-way opening-up of China's financial sector and the dual-circulation development paradigm."

Under a diversified shareholding structure, the corporate governance system of wealth management JVs and other wealth management companies will have significant differences. This will lead to distinctive features of the JVs in terms of development strategies, business expansion paths and the creation of salary incentives and product systems, Zeng said.

Major foreign shareholders of wealth management JVs are internationally well-known asset managers with long-term experience in asset management and outstanding capabilities. Compared with domestic wealth management companies, they may have more prominent market-oriented operational experience and stronger ability to invest in equity-based products, he said.

The JV established by BNP Paribas and ABC Wealth Management will leverage the respective advantages and features of both shareholders to better satisfy the increasingly diversified investment and wealth management needs of various types of customers, said Agricultural Bank of China.

The accelerated move of foreign investors entering China's wealth management market has been stimulated by the State Council — China's Cabinet — announcing 11 measures to promote the further opening-up of the financial industry. In 2019, the country allowed foreign companies to set up majority-owned wealth management JVs with wealth management units of local banks and insurers.

Goldman Sachs announced on June 24 that its wealth management JV with Industrial and Commercial Bank of China has received regulatory approval to begin operations.

Registered in Shanghai, Goldman Sachs ICBC Wealth Management is the fourth Sino-foreign wealth management company approved by the China Banking and Insurance Regulatory Commission, with a registered capital of 1 billion yuan. The US investment bank's asset management unit took a 51 percent stake in the JV while ICBC Wealth Management took 49 percent.

Amundi BOC Wealth Management, Schroder BOCOM Wealth Management and BlackRock CCB Wealth Management, which were approved to start operations earlier, had 150, 28 and five wealth management products (WMPs) that had not yet reached maturity, respectively, by the end of Oct 24, according to chinawealth.com.cn, a WMP information query website.

BlackRock CCB Wealth Management received a nod from the CBIRC to participate in a pilot program of WMPs for retirement planning and rolled out a product of this kind, which is likely to become a major direction in asset allocation by wealth management JVs, experts said.

jiangxueqing@chinadaily.com.cn