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How are China’s capital markets shaping up in 2022?

11 April 2022

Foreign investors and financial service providers are set to enjoy a year of new opportunities.

As China’s economic growth trajectory continues, the country’s policymakers are eager to support it further by encouraging foreign fund managers to domicile new investment funds on the Mainland as a way to attract more foreign inward investment. As Chinese middle class wealth increases, domestic investors are also seeking a wider range of funds to meet their investment objectives.

As part of this internationalisation, the government is also encouraging closer ties between Chinese stock exchanges and international financial markets, including streamlining the Qualified Foreign Institutional Investors (QFII) scheme processes to make it quicker for fund managers to enter Chinese markets.

Changes to the Qualified Foreign Limited Partnership (QFLP) scheme make it easier for wholly foreign-owned asset management and investment funds to invest in private markets in China. Since the pilot scheme was launched in Shanghai a decade ago, it has expanded to ten other mainland cities.

This further increases the speed at which China’s capital markets are opening and means more foreign funds will invest in the country, increasing China’s share of total global investment.

Wealth Connect – further opening access to China

Wealth Connect, introduced in October 2021, is a cross-boundary scheme linking Hong Kong and mainland capital markets in the Greater Bay Area (GBA). The Northbound Scheme allows Hong Kong residents to invest in M wealth management products distributed by banks via designated channels. The Southbound scheme replicates this in reverse for eligible Mainland residents. The result is a significant increase in the size of the market for products in each participating area.

Crucially, Wealth Connect will support China’s growing domestic wealth market – the GBA alone contains half a million investors with over $1m in assets. More regions and cities are expected to join the scheme at the next stage.

Further, Wealth Connect is expected to motivate a broader spectrum of foreign financial services providers to enter the rapidly developing market. While the Stock Connect and Bond Connect schemes compete with Wealth Connect, the three initiatives also promote one another.

At Apex Group, we help companies navigate these new systems with a connected approach, by supporting the implementation of complex business structures across all asset classes.

Supporting a greener China

With the second-largest green bond market in the world, China is also well placed to meet surging investor appetite for ESG-focused funds.

The Chinese government is supportive of the sustainability drive. Their leadership announced in 2020 that China aims to reach peak CO2 emissions by 2030 and become carbon neutral by 2060. This goal is backed by regulatory support incentivising companies to attract investment from green funds. These incentives will become increasingly important in the Chinese market as green finance becomes even more established in global portfolios.

International financial service providers can help fund managers navigate these changes and grow their business in China. Our local expertise, and technological capability tailored for individual businesses, supports foreign companies seeking to develop their services.

How we can help

We have a team of experienced, locally based professionals who provide a single source solution to help private equity clients establish their businesses in China. We provide fund administration, depositary, corporate and ESG services, to cover all private equity firms’ needs for successful business operations, backed up by high-quality technology and run on a powerful, scalable platform. To find out more about how our services can help your business, contact the team today.

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