Asset management - not an easy partnership
( 2002-08-05 10:18 ) (1 )

The expected partnership between Chinese and foreign fund managers may not be all sweetness and light.

Like other partnerships, it could produce mixed results.

The sweetness for the foreign partner could come from greater access to the mainland's lucrative assets management business. While for the Chinese partner, the international investment and expertise help upgrade services and distribution .

The enthusiasm can easily be felt. But the difficult part is often overlooked. The disparity in investment and obstacles like foreign exchange controls can be fuel for future disputes.

The new government rules on foreign co-operation with domestic fund managers indicate that foreign companies could hold as much as a 33 per cent stake and eventually have complete control.

But, foreign companies need a lot of research to understand and adjust to the Chinese stock market.

Most shares are nontradable and are either controlled by the State or State-owned institutions, so market liquidity is low, which makes it less attractive to foreign investors.

It takes courage for them to get into a market that does not resemble their own. So, about 20 foreign assets managers and banks have signed co-operative agreement with domestic companies on technology exchanges and training, but few have started preparing fund management joint ventures.

That was the way it always was in co-ordination and co-operation in JVs in China.

The limitations on foreign investment have made some overseas investment banks like Goldman Sachs and Merrill Lynch less enthusiastic and they have chosen to take a wait-and-see attitude.

Of course, the Chinese Government has its own concerns. In the capital market, giving licences to joint ventures means more risks.

One of the biggest challenges is how to make use of foreign capital when strict foreign exchange controls are in place. That has to be a balancing act between hot money risks and a vision of a more international market.

When Chinese companies cheer the injection of foreign capital and expertise they also find themselves surrounded by more foreign competitors. They have to improve themselves to maintain a foothold.