The Major New Asset Management Rules were Announced in China
The major new asset management rules, announced in April, are aimed at tightening shadow banking activities and reducing the systemic risks in order to develop a healthier domestic capital market.
However, the transitional period of the new rules will be from Friday to the end of 2020, compared with the end of mid-2019 as set in the draft guidelines. The extension will allow financial institutions sufficient time to adjust to the new rules, the statement said. Thus, the private fund manager wholly foreign owned enterprises (WFOEs) may have enough time to solve the difficulty.
The recent crackdown on the shadow banking industry might mean foreign managers in China will lose investments from wealth management products. Under the new rules, banks are prohibited from investing in such products, pushing foreign asset managers to rethink their fundraising strategy.
Financial institutions operating in China are no longer allowed to use asset management products to invest in commercial banks’ credit assets or provide channel service in an attempt to bypass the new regulations. China also forbids financial institutions from conducting asset pools to manage funds raised through asset management products.
The official guidelines also set different leverage ceilings on different asset management products according to their risk levels.
For example, total assets of an open-ended public offering product should not exceed 140 percent of the product's net assets, while the total assets of a closed-end public offering product should not be greater than 200 percent of its net assets.
Shadow banking has become a big part of China’s economy, growing to about $12.3 trillion last year according to recent numbers provided by the Bank for International Settlements (BIS).
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