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Bank to Set up Fund Management Firm
2005-8-9 9:42:43      China Daily
Following similar moves by its two domestic rivals, the China Construction Bank (CCB) has found new partners to launch a fund management company.

Principal Financial Group Inc, the second-largest retirement savings company in the United States, has agreed to start a fund management joint venture with CCB and China Huadian Group of Beijing, the company was quoted by Bloomberg as saying in a statement.

According to the statement, CCB will hold 65 per cent of the new venture, Principal may take a 25 per cent stake, the rest will go to China Huadian Group.

An CCB executive, who did not want to be named, confirmed with China Daily yesterday that his bank has received approval for the move, but he declined to reveal further details.

CCB, China's third-biggest lender, has almost 15,000 branches and controls about 15 per cent of mutual fund distribution in the country.

If the plan goes through, CCB will become China's third commercial bank to have a fund management joint venture.

The Industrial and Commercial Bank of China (ICBC) launched a fund venture with Credit Suisse First Boston (CSFB) and the China COSCO Group early last month. ICBC holds a 55 per cent stake in the venture, with CSFB taking 25 per cent.

Last month the venture started selling its first fund product, and is expected to raise 5 billion yuan (US$617 million) in a month.

Meanwhile, the Bank of Communications (BoCom) is scheduled to officially launch its fund venture next Monday with the Schroder Investment Management Ltd and the China International Marine Containers (Group) Co Ltd. The new venture has been registered in Shanghai, with BoCom holding 65 per cent and Schroder Investment Management Ltd having 30 per cent.

BoCom, China's fifth-largest commercial bank which had an oversubscribed initial public offering in Hong Kong two months ago, is selling 32 fund products worth at least 50 billion yuan (US$6.2 billion).

"This is an extraordinary opportunity to enter the rapidly growing Chinese mutual fund market," Rex Auyeung, Principal's head of Asia was quoted by Bloomberg as saying in the statement. "The market doubled to almost US$40 billion in assets under management in 2004 and is expected to reach US$60 billion by 2008."

However, market competition will be fierce, warned industry analysts.

Last year alone, 50 open-ended fund products were launched. By the end of 2004, there were 38 fund management companies in China that had launched altogether 161 products worth at least 330 billion yuan (US$40.7 billion), according to statistics from the China Securities Regulatory Commission.

International investors, as well as domestic competitors, are vying to tap China's 13 trillion yuan (US$1.6 trillion) or so of household savings. With an underdeveloped domestic capital market and a sluggish stock market, most households choose to put their money in the bank.

Even with their non-performing loans, China's commercial banks play an indispensable role in the country's financial system. In order to diversify their income channels, the banking authorities in April started to allow domestic banks to set up fund management companies. CCB, ICBC and BoCom were allowed to be the first batch of pilot banks to take part in the scheme.

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