Hedge Fund Intelligence Hedge Fund Intelligence - China | Page 32

CHINA 2013 REGULATION REGULATION CHINA 2013 Regulatory changes open door to long-term growth T Recent regulatory moves in China mark important steps forward in the fast-growing development of what many people believe could one day be the biggest investment management market in the world. The authorities are clearly keen to spur the long-term growth of an asset management industry that was previously viewed with mistrust – and to boost Shanghai’s role as a major international finance centre that is commensurate with China’s economic status and strength he Chinese asset management industry took an important step forward at the start of June this year with the passage of amendments to the Securities Investment Law. A briefing published by Clifford Chance explains that historically, “the unrecognised and unregulated status of hedge funds in China was largely attributable to the fact that ‘securities’ regulated under the Securities Law of the People’s Republic of China were narrowly confined to stocks, bonds and shares in regulated mutual funds”. It adds that “another factor contributing to hedge funds’ current state of non-recognition and non-regulation [was] the limited scope of the application of the Securities Investment Law of the People’s Republic of China. This law, enacted in 2003, only applies to publicly offered mutual funds.” This began to change at the start of 2011, with the circulation of a draft of a proposed amendment to the Securities Investment Law. One of the key provisions in this law, which was enacted in June, is that privately managed funds – or sunshine funds – with assets of more than RMB100 million are required to register with the Asset Management Association of China (AMAC), a selfregulatory body backed and sponsored by the China Securities Regulatory Commission (CSRC). 32 Special Report September 2013 © HedgeFund Intelligence Lunn at UBS in Hong Kong echoes the view expressed across the financial services industry in the region when he says that the significance of the amendments to the law is principally that they legitimise an industry that, historically, had been regarded with profound mistrust by the Chinese authorities. Ying White, head of the funds and investment management group at Clifford Chance in Beijing, agrees. “Registering under the new law means that firms can legitimately run private fund management businesses and hold themselves out as fund managers,” she says. “They no longer have to call themselves sunshine funds. That means that they are no longer solely reliant on distribution channels used by sunshine funds.” Some say it may be too early to describe the hedge fund industry in China as having been fully legitimised by the amendments. “There are still a number of grey areas that need to be ironed out, but the new policy is certainly a good © HedgeFund Intelligence September 2013 Special Report 33