A new ASIFMA paper provides policy recommendations for making China’s capital markets easier to access and more attractive to foreign institutional investors.
ASIFMA (the Asia Securities Industry & Financial Markets Association)’s Asset Management Group has released a new paper providing recommendations on improving China market access for FIIs (foreign institutional investors) investing and operating in the country.
The paper looks at the recent developments and progress made in China as well as the remaining issues and challenges faced by FIIs, especially foreign investment managers, when they (i) invest in China’s equities and debt markets through the various access channels, (ii) operate an asset management business in China, and (iii) raise funds in China for investment offshore.
“Tremendous progress has been made to open and broaden China’s capital markets in the past two years,” said Eugenie Shen, Managing Director and Head of ASIFMA’s Asset Management Group. “Our hope is that this paper will help Chinese policymakers and regulators understand better the challenges faced by FIIs so that our suggested improvements and enhancements, which are all aimed at increasing investments in China, will be adopted and implemented in the near future.”
Some of the key policy suggestions to make China’s capital markets easier to access and more attractive for FIIs include:
• Certainty and clarity in policies, rules and regulations, especially on proceeds repatriation and tax treatment, through publication rather than ‘window guidance’.
• Simplification, alignment and eventual convergence of the different access schemes, which are confusing to FIIs, who would prefer to consolidate their positions and be able to easily transfer them from one scheme to another to reduce duplication, achieve operational and cost efficiency, and optimise returns for their investors.
• Harmonisation of trading and settlement processes with international standards for both debt and equities and across the different access channels, such as a convergence towards a DvP T+2 equities settlement cycle, to reduce the need for system and process adjustments and work-around solutions in order for FIIs to trade in China’s capital markets.
• Unification of the rules for China’s asset management industry based on the type of products and activities, rather than the type of entity involved, to reduce fragmentation, complexity and confusion, as well as to create a level playing field for all participants and prevent regulatory arbitrage. For example, WFOE (wholly foreign-owned enterprise) private fund managers are not allowed to launch funds with overseas exposure, a restriction that domestic-owned firms are not subject to.
The full paper is available here.