Anyone with a knowledge of investment in the region says Westerners cannot come to China and expect to do business as they are used to. “It is usually a condition of collaboration that you share, and Westerners are worried about that,” she says. “And I guess you have to consider how much you want it as to whether you accept that.” The Chinese funds management industry began in 1998, and in the 10 years from 1998 to 2007, total funds under management has increased from RMB10.6 billion to RMB3.28 trillion, an increase of more than 300 times. It is now about RMB2.5 trillion. The industry has about 60 funds managers, and about half of those are joint ventures. Qualified Foreign Institutional Investors (QFII) now account for about RMB116 billion (US$17 billion). Offshore investors need a QFII licence to invest in China. Managers with a licence include familiar names such as UBS, Nomura Securities, Citigroup Global Markets, Goldman Sachs, HSBC, Deutsche Bank, JP Morgan, INVESCO, Martin Currie Investment Management and AMP Capital Investors.
Some investors have gained their own licences – such as the Bill and Melinda Gates Foundation, and Yale University. Patrice Conxicoeur, director of institutional business for Asia-Pacific at HSBC Asset Management, is encouraging investors to get their own licence, rather than use a funds manager’s, because the QFII status includes a limited dollar allocation within the first 12 months, and demand means the funds managers’ quotas are quickly at capacity. He says once an investor has their quota, and that process can take up to two years, they have six months to remit into China, but the money has to stay in the country for one year. One of the recurring themes of Global Dialogue presentations was the importance of choosing the right partner to do business with in China.
Anh Lu, vice-president at T Rowe Price and portfolio manager for Asia ex-Japan, highlights deep local expertise, cultural backgrounds and language expertise as qualities for success in a partnership. While she concedes there is a high policy risk in China, and investors need to consider their capacity to predict policy direction and whether policy risk is properly considered in the company share price, she says there are plenty of opportunities. “You have to be prepared to go further down the cap levels to capture these opportunities. The index does not represent the country’s real long-term potential,” she says. Managing liquidity risk is also an important consideration in China, she says. “Information is not as available and can be deceiving if you look at it the wrong way.