In the news: China regulates mobile apps, opens up to foreign fund managers and sets higher asset appraisal standards

China opens up to foreign private equity and hedge funds

The China Securities Regulatory Commission (CSRC) said on June 30 that it will allow wholly foreign-owned enterprises (WFOEs) and joint venture private equity funds to apply for permission to set up asset management services and invest in domestic capital markets. The funds can't raise money outside China to invest domestically or repatriate earnings out of the country, but this marks the latest move to further open up the PRC markets and financial sector, and to internationalize the renminbi. The Asset Management Association of China (AMAC) released a Q&A the same day addressing registration and filing issues. The Foreign Investment Industrial Guidance Catalogue sets a maximum 49% foreign ownership for mutual fund management (interpreted as applying to both primary and secondary securities markets), and despite having received several applications from WFOEs and majority foreign-owned firms over the years, AMAC has not approved a single one. As a result, hedge funds have tried to indirectly tap China's markets by collaborating with local asset managers as “consultants”—a regulatory grey area—but all this will now change. That said, foreign fund managers are likely to start off with relatively small quota allocations, and many may prefer to stay away from volatile markets unconducive to long-term international strategies. Finding sales and distribution channels in a market dominated by large state-run banks could also be tough.

NPC adopts law regulating asset appraisals

The National People's Congress is reviewing a new draft law on asset appraisals, the first since the industry began nearly 30 years ago. The law will take effect on December 1 and allows certified appraisers who have passed national exams and others who have expertise and direct experience in asset evaluation to practice. Those that sign false reports can face a lifelong ban and agencies are required to supervise and take responsibility for the conduct of their practitioners. Official figures state that China has more than 14,000 appraisal agencies, more than 130,000 certified appraisers and 600,000 others employed in the industry. The proposed revisions are aimed at making the economic system more market oriented, especially as China tries to restore order and investor confidence. False assessments have been an issue, and setting formal codes of conduct, having qualified appraisal agencies operate under stricter legal standards, and establishing official regulatory reporting channels will help clean up and mature the asset evaluation industry.

China sets requirements on apps and app stores

The Cyberspace Administration of China (CAC) has tightened its grip on the rapidly growing mobile app market, issuing new rules that demand all domestic app providers to be filed with the authorities, adopt real-name registration, verify user identities and store activity logs for 60 days. The regulation, effective August 1, also requires providers to issue warnings, restrict access, suspend updates or shut down accounts of users who publish “illegal information” and content. They will also need the explicit consent of users to access their geographic location and contact list, record video and audio through the device or activate or bundle functions with their services. The CAC estimated there were more than four million apps available through online stores on the mainland. WeChat, QQ, AliPay, Taobao and Tencent Video were among the most popular last month in terms of active users, according to research firm Analysys International. Under the new rules, mobile app providers must meet six criteria in order to qualify and operate. And for app store providers, an internet content provider (ICP) license from the Ministry of Industry and Information Technology, an online cultural operating permit from the Ministry of Culture and an online publishing permit from the State Administration of Press, Publication, Radio, Film and Television must be obtained. Currently, foreign companies cannot qualify for any of these. Services including Apple's App Store and Google Play in China will need to update their operations. The regulation takes effect on the same day as that for online search and advertising, and both come at the heels of the second reading of the draft Cybersecurity Law, which was presented to the National People's Congress last week.

China opens up to foreign private equity and hedge funds

The China Securities Regulatory Commission (CSRC) said on June 30 that it will allow wholly foreign-owned enterprises (WFOEs) and joint venture private equity funds to apply for permission to set up asset management services and invest in domestic capital markets. The funds can't raise money outside China to invest domestically or repatriate earnings out of the country, but this marks the latest move to further open up the PRC markets and financial sector, and to internationalize the renminbi. The Asset Management Association of China (AMAC) released a Q&A the same day addressing registration and filing issues. The Foreign Investment Industrial Guidance Catalogue sets a maximum 49% foreign ownership for mutual fund management (interpreted as applying to both primary and secondary securities markets), and despite having received several applications from WFOEs and majority foreign-owned firms over the years, AMAC has not approved a single one. As a result, hedge funds have tried to indirectly tap China's markets by collaborating with local asset managers as “consultants”—a regulatory grey area—but all this will now change. That said, foreign fund managers are likely to start off with relatively small quota allocations, and many may prefer to stay away from volatile markets unconducive to long-term international strategies. Finding sales and distribution channels in a market dominated by large state-run banks could also be tough.

In the news: China regulates mobile apps, opens up to foreign fund managers and sets higher asset appraisal standards

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