Foreign investment in China’s fund-management industry : opportunities and challenges

Liu, Wei (Stellebosch : University of Stellenbosch, 2006)


ENGLISH ABSTRACT: The study addresses foreign investment in China’s fund–management industry, with a detailed analysis of the opportunities and challenges that foreign investors may face. With the entry of China into the World Trade Organisation (WTO) in 2001, foreign investors have been allowed to hold up to 33% of a joint fund-management firm, which has increased to 49% from the end of 2004. As a trendy investment tool, investment funds, and particularly mutual funds, have expanded significantly especially as regards market size and economic importance in developed economies. This study starts with an introduction to the investment fund, which includes types of investment funds and the advantages of mutual funds. Then, the history of China’s fund-management industry is described to give a brief picture of this nascent industry. In order to justify the promising future for foreign investment in China’s fund-management industry, the study first analyses the sustainability of China’s economic growth, which is driven by some favourable aspects such as the gradual development of an economic structure, continued FDI inflow and WTO membership. Another two specific factors that may be favourable for the fund-management industry in this regard, namely pension fund reform and increased income, are also discussed. Foreign investors in China’s fund-management industry are also exposed to some challenges. For investment funds, the main platform is the financial markets, which means that the development of the fund-management industry is tied closely to the development of the financial markets. In the case of China, the financial markets are still developing and have not grown into efficient capital allocation mechanisms due to the restricted involvement of foreign participants and substantial government intervention. However, this study only focuses on major opportunities and challenges associated with foreign investment in China’s fund-management industry. A detailed analysis of each of various relevant aspects can be conducted in a future study, as well as a pertinent survey.

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