Beijing Taking Measures To Address China’s Upcoming Retirement Savings Deficit

China has been leveraging the domestic interest rate as an integral part of its monetary policy since the opening up of the bond market in 2019, increasingly allowing international investors to hold municipal bonds.

Further into its liberalization of the market, China also allowed foreign capital to play a part in its funds market from earlier this year. 

Beijing took these measures to help reform its pension system, capital markets, and investment management industry as a means to curb the retirement savings deficit anticipated in the coming years.

For the foreign capital, the expanding retail wealth and low utilization of mutual funds are attractive factors for those looking to tap into the market.

And early entrance promises a larger share of the economy as the market expands and matures.    

As a result, hundreds of mutual funds have been launched – as of mid-2020 – with over forty international asset management firms forming joint-ventures with domestic firms, and some vying for even more control. 

Investment firms such as Blackrock have gained permission to set up full-control mutual funds inshore, and UBS Group AG has said it is considering options to expand into China including taking full control of its Chinese joint venture, while Fidelity International Ltd. said they are planning to apply for a mutual-fund license. 

Amidst the COVID-19 pandemic uncertainty, and escalating U.S.-China tensions, local retail investors tend to lower their exposure to risk while at the same time seeking to diversify their portfolios through mutual funds and other commodities.

According to the Asset Management Association of China (AMAC), the net value of open-ended equity and balanced funds at the end of August has thus far reached 4.2 trillion RMB, up nearly 70% from 2.5 trillion RMB in the same period last year.

However, despite the active market, large scale international companies may not find themselves that well received in China; Chinese retail investors are more familiar with local names, and are more adept at taking their pick of fund managers on live-streaming websites, such as Alipay. 

 According to data from Bloomberg and Morningstar, only two of the top 10 biggest funds raised this year were backed by foreign capital. 

By the end of August, foreign-linked joint ventures had raised US$470 billion, while US$967 billion was raised by Chinese based funds.