China Plans to Relax Rules on Foreign Firms Investing in Bad-Debt Managers

24 Jul 2023

What’s new: China is planning to allow overseas nonfinancial firms to make equity investments in domestic financial asset management companies (AMCs) and lower the bar for overseas financial institutions to do so, in a bid to further open up its financial market.

The changes are set out in draft rules released on Friday by the state administration for financial regulation (SAFR), a new watchdog. Financial AMCs are bad-debt managers, such as state-owned China Huarong Asset Management Co. Ltd. and China Galaxy Asset Management Co. Ltd.

Removing the ban on overseas nonfinancial firms’ equity investment in financial AMCs can help the latter attract talent with professional experience and “optimize corporate governance,” the regulator said in a Q&A about the draft rules.

Under the draft rules, overseas financial institutions would still need to meet a number of requirements to invest in the AMCs, though they would be no longer required to have at least $10 billion in total assets at the end of the most recent financial year. The current threshold for total assets is part of the regulations released in 2020 by the now-defunct China Banking and Insurance Regulatory Commission, the SAFR’s predecessor.

The background: China has accelerated the opening-up of its financial sector in the past few years, granting foreign institutions wider access to one of the world’s biggest capital markets.

In 2020, the government scrapped the limits on foreign ownership of futures, securities, and mutual fund companies as well as life insurers. Regulators have also made it easier for foreign institutions to invest in onshore markets for stocks, bonds and derivatives through long-standing initiatives such as the Qualified Foreign Institutional Investor scheme and by expanding programs connecting Chinese mainland capital markets with those in Hong Kong.