A new era for China investors - J.P. Morgan Asset Management

A new era for China investors

Contributor Aidan Shevlin

The final version of the new rules for China’s CNY 100trn asset management industry has now been published by the Chinese financial regulators. It is essential to understand the implications of the new rules for the industry whilst outlining practical steps for rethinking liquidity management practices in the country.

China’s AMP rules: need to know

At a glance, what are the new AMP rules looking to achieve?

In brief, the new rules are designed to: limit shadow banking activities; ban expected return and principal guarantees; harmonise regulatory standards; and reduce regulatory arbitrage.

What constitutes an ‘Asset Management Product’ according to the rules?

Historically, shadow banking was the broad term for all non-time deposit products issued and managed by commercial banks and financial institutions, including wealth management products (WMP), trust products (TP), asset management plans and so on.

The new regulations specifically define Asset Management Products (AMPs) as an umbrella term for all these instruments (with a few exceptions such as private funds and pension products).

Under the new rules, all public AMPs must be managed on a mark-to-market net asset value (NAV) basis (there are some exceptions for amortised NAVs) without offering expected returns or implicit guarantees. AMPs will have strict rules on leverage, layering and risk reserves; in addition they must be managed by a segregated asset management business and have a separate custodian.

How does the regulator define standard assets and non-standard assets?

The new rules stipulate that publicly-offered AMPs, which make up the majority of existing products, can only invest in standard assets (SAs). Typical standard assets are tradable fixed income instruments or equity shares. Non-standard assets (NSAs) are essentially all other assets.

According to the new rules, qualified investors can still buy privately offered AMPs that invest in NSAs, but there are strict rules regarding the type of investors, pricing of the NSAs and type of investments that private AMPs can put money into. As such, it is worth seeking specialist advice on this topic where appropriate.

More questions are discussed in the full article
  • What are the new asset management industry rules? When do they come into force in China, and what will their broad impact be?
  • Why were new regulations needed for the shadow banking sector and what were the Chinese authorities looking to achieve?
  • What other drivers led to the issuance of these new rules?
  • Are the final AMP rules tighter or looser than the original draft released in November 2017?
  • Surely these new rules will have a significant impact on commercial banks? How will this change their business models?
  • What might this mean for the competitive landscape? Which banks will be the winners? And where will all the money from AMPs actually end up?
  • How will fund managers in China be affected by the new rules? Is the future bright?
  • Will RMB money market funds (MMFs) be impacted by the new rules, then?
  • What will the impact of the AMP rules be on asset classes and market-driven yields?
  • What does all of this mean for corporate treasury functions and their liquidity management practices in China?
  • Any other useful tips for treasurers with liquidity in China around preparing for the new rules?
  • Finally, what is the impact of the new rules in summary? And what next steps should corporate treasurers take to embrace this change?

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The article was first published by TMI in Issue 261.

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