Chinese Banks Permitted To Set Up Fund Management
Companies
The Chinese government has decided to allow selected
banks to set up fund management companies to invest in
China's listed companies on the Shanghai and Shenzhen
exchanges.
The move is largely seen as an opportunity to breathe
life into China's poorly performing stock markets. On
Feb. 21, the first trading day after the announcement,
the Shanghai Composite Index rose as much as 1.6%.
China's domestically sold mutual funds have performed
poorly in 2004, with most funds losing value. In 2004,
mutual fund companies came under fire from the Chinese
public for false advertising of their financial products.The
government introduced new regulations affecting their
advertising and marketing, requiring that they inform
the Chinese public that there is a risk element and that
they could lose money by buying mutual funds.
While some of the banks will be permitted to invest
in mutual funds, there will still be severe restrictions
on how mutual funds are marketed. The banks will not
be permitted to share their client list with the fund
management companies; their client lists will have to
be developed and marketed independently.
China's leading banks have been re-organized into joint-share
companies, and either have listed already in overseas
markets, or are preparing for overseas listing. However,
even after their re-organization, they will continue
to be heavily regulated by the Chinese government, which
is sensitive to major changes in capital flow in the
Chinese domestic market while the economy changes to
a market economy. Most importantly, the Chinese government
wants to slow investment growth in some sectors which
already have too much investment, and are showing poor
returns on investment.
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