Smaller is better for Chinese joint ventures

Merging_blocksForeign firms that wish to gain majority control of Chinese financial services companies have been advised to select small firms as their joint-venture partners. Now that the Chinese government has raised the cap on foreign ownership in financial services from 49% to 51%, foreign companies see an opportunity to assert themselves. However, “those in existing joint ventures (JVs) with bank-affiliated local managers may find it difficult to gain majority control over the business, as banks have strong power to push back," said Ye Kangting, an analyst with research firm Cerulli Associates. “Global managers may find greater opportunities to form JVs with, or fully acquire, smaller players that are struggling to raise assets and profits.” Foreign companies also have the option to set up wholly foreign-owned enterprises (WFOEs) – another strategy to give them control over their onshore businesses. To date, 13 WFOEs have registered as private securities fund managers with the Asset Management Association of China, according to Cerulli. “Foreign managers should choose the approaches that work best for their business models,” said Ye Kangting. “They need not be limited to a single approach, given the greater number of avenues to tap Chinese assets.” ©2018 funds global asia

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