Developing institutional investors in People's Republic of China

WORLD BANK COUNTRY STUDY PAPER DEVELOPING INSTITUTIONAL INVESTORS IN PEOPLE'S REPUBLIC OF CHINA Yongbeom Kim Irene S. M. Ho Mark St Giles SEPTEMBER 2003 THE WORLD BANK  ABBREVIATIONS AIG American International Group, Inc. ABS Asset-Backed Securities AMCs Asset Management Companies BOCI Bank of China International BW Bond with Warrant CD Certificate of Deposit CDB China Development Bank CDC China Government Securities Depository Corporation CIFs Collective Investment Funds CIRC China Insurance Regulatory Commission CITIC China International Trust and Investment Corporation CP Commercial Paper CSRC China Securities Regulatory Commission EXIM Exports and Imports GDP Gross Domestic Product HSBC Hong Kong Shanghai Banking Corporation IBM Inter-Bank Market IPOs Initial Public Offerings M&As Mergers and Acquisitions MOF Ministry of Finance MOLSS Ministry of Labor and Social Security MOFTEC Ministry of Foreign Trade and Economic Cooperation NAV Net Asset Value NBFI Non-Bank Financial Institution NDRC National Development and Reform Commission NSSF National Social Security Fund OECD Organization for Economic Cooperation and Development OTC Over-the-Counter PAYG Pay-as-You-Go PBOC People's Bank of China P/E Price/Earnings PRC People's Republic of China QFII Qualifying Foreign Institutional Investors Repo Repurchase Agreement RMB Renminbi (Chinese currency: Yuan) SAFE State Administration of Foreign Exchange SAIC State Administration for Industry and Commerce SDPC State Development and Planning Commission SEC Securities and Exchange Commission SEM Stock Exchange Market SETC State Economic and Trade Commission Sinopec China Petrochemical Corporation SOE State -Owned Enterprises TICs Trust and Investment Companies US United States UK United Kingdom WTO World Trade Organization  Table of Content PREFACE........................................................................................................................ I EXECUTIVE SUMMARY ............................................................................................ II 1 INTRODUCTION .................................................................................................. 1 2 THE ROLE OF INSTITUTIONAL INVESTORS IN CAPITAL MARKET DEVELOPMENT........................................................................................................... 2 3 TODAY'S INSTITUTIONAL LANDSCAPE....................................................... 5 3.1 Overview......................................................................................................... 5 3.2 Banks............................................................................................................... 5 3.3 Pension Funds................................................................................................. 7 3.4 Insurance Companies.................................................................................... 12 3.5 Collective Investment Funds......................................................................... 15 3.6 Securities Companies.................................................................................... 19 3.7 Trust and Investment Companies.................................................................. 21 3.8 Underground Funds...................................................................................... 24 3.9 Summary of the Institutional Landscape and International Comparison..... 25 4 STRUCTURE OF CHINA'S CAPITAL MARKETS.......................................... 27 4.1. Bond Markets................................................................................................ 27 4.2. Money Markets.............................................................................................. 34 4.3. Equity Markets.............................................................................................. 38 5 CHANGES IN THE INSTITUTIONAL ASSET MANAGEMENT SCENE..... 45 6 THE WAY FORWARD ....................................................................................... 50 6.1 Consolidation of Asset Management and Applicable Standards.................. 51 6.2 Level Playing Field....................................................................................... 54 6.3 Availability of Wider Range of Investment Opportunities and Products...... 56 6.4 Relaxation of Investment Restrictions........................................................... 59 6.5 Increased Role of Banks................................................................................ 65 6.6 Pension Reform............................................................................................. 68 7 CONCLUSION..................................................................................................... 70 APPENDIX1-- CORPORATE BONDS ISSUANCEINCHINAFOR2000-2002 ...................... 73 APPENDIX2-- MAJOROWNERS OF TENLARGESTSECURITIESCOMPANIESOFCHINA .. 75 APPENDIX3-- OWNERSOFFIVE LARGESTFUNDMANAGEMENTCOMPANIESOFCHINA76 APPENDIX4-- PERMISSIBLE ACTIVITIESFOR BANKINGORGANIZATIONSINVARIOUS FINANCIALCENTERS...................................................................................................... 77 APPENDIX5-- DOMESTICLIMITSONINVESTMENTREPRESENTING TECHNICAL PROVISIONS