The role of HK in the development of the China fund management industry Presented by Au King Lun, Ch

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The role of HK in the development of the China
fund management industryPresented by Au King
Lun, Chairman of HKIFA at the American Chamber
of Commerce Luncheon

• Hong Kong Investment Funds Association
• (July 7, 2004)

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Discussion topics

• An overview of the China fund management industry
• The role of Hong Kong in the development of the
  China fund management industry
• How to further foster the relationships between
  the Mainland and Hong Kong

HKIFA
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An overview of the China fund management industry
HKIFA
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Regulatory framework

• 1997 Interim Measures for the Administration of
  Securities Investment Funds
• 2002 Trial Measures for Open-ended Securities
  Investment Funds
• 2002 Rules for the Establishment of Fund
  Management Companies with Foreign Investment
• 2004 Securities Investment Funds Law

HKIFA
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Number of fund management companies

• As at the end of May 2004 38 fund management
  companies in China

HKIFA
Source CSRC
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Asset size
Closed-end funds 87.7 billion yuan (US10.7
billion) Open-ended funds 197.2 billion yuan
(US24 billion)
Source CSRC (As at May 31, 2004)
HKIFA
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Investor growth
HKIFA
(From various industry sources)
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Investment products

• Based on of FUM of the 80 open-ended funds

HKIFA
(From various industry sources)
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Joint ventures

• As at the end of May 2004, there are over 10
  joint ventures. (Source CSRC)
• More JVs are in the pipeline.
• WTO maximum shareholding of foreign partner
• current 33
• three years after accession (i.e. by the end of
  2004), raised to 49.

HKIFA
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QFIIs

• Allow foreign financial institutions to invest in
  Chinese Renminbi denominated instruments
• (e.g. equities, bonds and mutual funds)
• Introduced in 2003, there are now 11 approved
  QFIIs (US1.76 billion). Another dozen
  applications being reviewed by the Chinese
  authorities.
• Success of QFIIs pave way for QDIIs

HKIFA
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QDIIs

• Opportunities for the fund management
• industry
• National Social Security Fund
• Insurance companies
• Others

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National Social Security Fund (NSSF)

• NSSF 135 billion yuan (US16.5 billion)
• Six domestic fund managers have been appointed to
  manage part of the portfolio in December 2002.
• The second batch will be appointed soon.
• The NSSF has obtained approval in principle to
  invest overseas.

HKIFA
Source BOC (As of May 2004)
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Insurance companies

• Assets of insurance companies over 1,000
  billion yuan (US122 billion)
• Estimated that the insurance industry grows at
  about 30 each year.
• Need for diversification to provide better match
  for liabilities.
• April 2004 Rules have been promulgated allowing
  insurance companies to set up asset management
  companies to manage insurance assets.
• Authorities have in principle approved plans for
  insurers to invest overseas.

HKIFA
Source CIRC (As of May 2004)
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Other potential

• Rapid economic growth and increase in household
  income
• GDP reached US1.4 trillion (2003)
• Per capita GDP exceeded US1,000
• Large bank deposit base
• Bank savings (individuals) 11.2 trillion yuan
  (US1.4 trillion) (As at the end of April 2004)
• Forex deposits (individuals enterprises)
  US147.4 billion (As at the end of April 2004)
• Bank deposits rate below 2 vs. CPI of over 4

HKIFA
Source National Bureau of Statistics of China
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Other potential (contd)

• SOEs reforms
• Pensions reforms
• Ageing population
• Low investment returns from pension assets need
  for diversification
• Corporate supplemental pensions 30 billion yuan
  (US3.7 billion) expect to increase 50-80
  billion yuan each year and reach 500 billion yuan
  (US61 billion) by 2010.

HKIFA
Source MOLSS (As of June 2004)
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The role of HK in the development of the China
fund management industry
HKIFA
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Role of Hong Kong

• As a capital formation centre for China
• As a key source in providing technical expertise

HKIFA
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1. As a capital formation centre for China

• Raise funds for investment in the capital markets
  in China (e.g. QFIIs)
• Help SOEs and private enterprises to list in HK

HKIFA
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1. As a capital formation centre for China
(contd)

• Over the past ten years, US100 billion have been
  raised by Mainland-related enterprises in Hong
  Kong
• 86 of Mainland Chinese companies listed overseas
  are listed in HK
• HK leads in fund raising capability,
  international status, market efficiency,
  availability of professional services, regulatory
  framework and quality of investors.

Source HKEx
HKIFA
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2. As a key source in providing technical
expertise

• Investment
• International investment management expertise
• Risk management
• Marketing and distribution
• Channel management
• Product development and innovation
• Investor education and financial planning
• Client servicing

HKIFA
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2. As a key source in providing technical
expertise (contd)

• Backoffice and support function
• Information technology know-how
• Personnel management recruitment and training
• Regulatory
• Regulatory framework
• Compliance
• Corporate governance

HKIFA
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How to further foster the relationships between
the Mainland and Hong Kong

• HKIFAs proposals
• 1) To allow HKSFC-authorized funds to be used as
  vehicles for QDII purposes
• - initial stage HK-domiciled funds only
• - later extend to all HKSFC-authorized funds
• To allow HKSFC-authorized funds to be marketed in
  the Mainland
• - 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
• 3) To continue maintaining dialogue with the
  counterparts in China (via the HKIFA China
  Subcommittee)

HKIFA
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Thank you Q A
HKIFA