We got our Chinese assistant to do a quick call around on behalf of her foreign boss. When we asked the banks, “Can a foreigner now buy funds”, the answers we got as of April 23, 2013 were:
Bank of China – No, not yet
China Construction Bank – No
China Merchant Bank – No
ICBC – Yes – see list of funds online. All you need is a passport.
China Communications Bank – No
Bank of Agriculture – From May 12th you can.
HSBC – No, we can’t sell funds to anyone.
Standard Chartered – No, we can’t sell funds to anyone.
Why the wait?
It seems strange to us that it is not yet possible at several Chinese banks. Perhaps the branches haven’t yet got the memo since implementing the change shouldn’t be difficult. The IT infrastructure is already established and fund accounts for Chinese have existed for several years. Perhaps they are worried about putting foreign names into a system build for Chinese names. Or perhaps management just doesn’t see it as an important matter to communicate and staff don’t know. It is hard to tell. Still there are options already out there, so let’s look at what to do.
What’s up with the foreign banks?
In a tradition that China stole from Japan (shhh don’t mention that though) China uses administrative measures to control, restrict and otherwise hamper overseas competition from taking significant market share from its domestic champion companies. If you have been in China for a while working for a foreign company at a senior level, you’ll have seen this in action many times. Licenses are possible, but the restrictions are heavy, the rules difficult to comply with or vague and waiting time extensive.
Foreign banks also face the “one at a time” unwritten rule from the CBRC, which prevents them from applying for more than one license at a time. That’s a great way to slow things down. If you think it hasn’t been successful because you see branches everywhere for foreign banks. Think again. At a recent China banking conference, a presenting analyst estimated that the foreign banking sector had a market share of 1.8% in China. That’s not HSBC or Citi by itself. That’s about 20+ foreign banks with a noticeable presence in China COMBINED. Bank of China by itself dwarfs that number. But we digress. Back to buying funds.
What should I do if I’m buying?
Well it would help to read Chinese. Chinese banks, even the foreign owned ones, are still set up to deal with Chinese only and foreigners aren’t so much an after-thought as completely forgotten. The Chinese fund universe isn’t nearly as big as say the US or Europe with only 1,500 funds. Still that is to be expected since the stock market itself is barely more than 22 years old. Barely more than a teenager trying to find itself.
Useful facts to know
- Take your passport in and open up a fund account “Ji1Jin1 zhang4hu4” 基金账户.
- Chinese funds have a five digit fund code to identify them.
- Fees on most funds seem OK with small entry charges usually of 0.5-1% on the funds we have seen and back end charges starting at 1.5% and declining over 5 years. Lower is better.
- Management fees mostly seemed in the 1-1.5% range, which whilst not as good as the average American mutual fund, are broadly in line with markets in Europe, Asia and Australia.
- Look for funds that have at least a 1 year operation. Given how new things are, asking for 10 years isn’t really possible. Even 5 years will limit out many of the best funds.
- ICBC has a pretty decent mutual fund supermarket online here, if you read Chinese. If not, then it will be pretty darn confusing.
I want China A share exposure and I want it in English!
We still think that an easier and more transparent way to invest in the Chinese market is with an overseas fund that has quota to access the Chinese ‘A’ share market and a clear track record and supporting material in English.
Some Chinese funds have international exposure (which you can access better elsewhere) and/or very inexperienced teams, and it can be tough to tell from public information available exactly what is going on, even if you can read Chinese. We help foreigners buy mutual funds overseas including ones with ‘A’ share market exposure, so contact us to learn more on firstname.lastname@example.org but we can’t help you buy Chinese mutual funds directly (sadly).
We write a more detailed view on different mutual funds in China in coming posts.
About Caterer Goodman Partners
Caterer Goodman Partners is a Shanghai based wealth management firm established with a clear vision to provide a new level of personalized financial planning services for expatriates in Asia. Our financial advisors provide guidance for our clients in all areas of investment, specialising in managed accounts, money-market funds, retirement planning and alternative investments. At Caterer Goodman Partners, we offer our advice and experience to provide low cost, tax-effective and simple solutions to match our clients’ interests.
About Owen Caterer
Since graduation Mr Owen Caterer has worked with the Queensland Premier's Department in Trade Facilitation and then as a financial adviser in Shanghai from 2005 until 2010. He then rose to Senior Adviser, then Business Development manager and then to Chief Investment Officer responsible for portfolios to a value of US$280 million across Asia. Following that Mr Caterer left to found his own firm with a partner in the financial advisory and wealth management area. This focused on developing China and Asia's first fee-based financial advisory (rather than commission-based). This has grown to now have 8 staff and and managing almost US$35 million for clients throughout Asia. This business success was recognized as a finalist in the 2013 ACBA in the Start Up Enterprises category and are one of a small number of foreign managed firms to have a full asset management license in China. Owen has also been active in the community volunteering for the Australian Chamber of Commerce in Shanghai and acting as the Vice-Chair of the Small Business Working Group (2012-2014) and as the Co-Deputy Chair of the Financial Services since 2013 until the present. They have continued to grow their business and have now been selected as a small group of companies who are platinum members of the Australian chamber of commerce. The achievement they are most proud of is their efforts to reform the financial planning industry in China and push it away from a hard-sales commission driven model to a more ethical management fee and long term customer service model. Owen has a Graduate Diploma of Applied Finance from the Securities Institute of Australia of which he was a member as a Fellow of Finance for many years and also has an undergraduate degree from Griffith University in International Business. Owen's interests are tennis, running and his wife and two children. He speaks fluent Chinese, first arriving in China in 1997.