The impact of China’s new asset management regulations - J.P. Morgan Asset Management

The impact of China’s new asset management regulations

Contributor Aidan Shevlin

China’s financial markets are evolving. Asset management products have come under new regulations of unprecedented breadth and depth, with momentous implications. Eventually, the rules will likely bring major improvements in stability, transparency and innovation. But before positive change arrives, in the short term regulations may trigger volatility and uncertainty.

In brief:
  • The rapid increase in shadow banking, off-balance-sheet financial activities funded by largely unregulated asset management products, has helped push China’s debt-to-GDP ratio to potentially unsustainable levels.
  • Asset management product rules introduced in April 2018 represent a concerted attempt by China’s regulators to curtail the shadow banking sector and reduce financial risks.
  • The new rules herald major, positive changes in how financial institutions operate in the longer term, with significant positive implications for investors, issuers and financial markets, but they are likely to increase volatility and uncertainty.
  • These new rules should benefit corporate treasurers by increasing innovation and choice; however, treasurers should not forget their key goals of liquidity and security.

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