There are quite a few countries that can pose such big challenges to the global asset management companies like China. It might have the fastest growing deposits in the world but it is hard for anyone to make a bite of it.
　　Peter Alexander knew clearly about this challenge. He is the founder of Z-Ben Advisors, a Shanghai-based fund consultancy company and devotes himself to the operation of foreign companies in China from 2004, when the China just opened its fund market to the international fund companies.
　　From then on, the assets under management of China’s fund industry increased from 295 billion yuan (35 billion U.S. dollars) to 2.11 trillion yuan (336 billion U.S. dollars). In the past ten years, dozens of foreign companies established their business in China and their destinies are different.
　　A main disappointing factor for the foreign companies is the Chinese rule that the foreign companies are only allowed to have minor shares of their joint-venture asset management companies – they have to give the shareholding right to their local partners.
　　“Everyone I talked with said that these joint ventures were sadly doomed. The foreigners were ousted or lost the control,” Alexander said.
　　“I have to interrupt them and then said,‘please define failure first’. If you look at them from the economic viewpoint, nearly all of them are earning with only a few exceptions. As for the control, well, unfortunately, that’s the only result when you maximally can have 49% shares.”
　　Peter Alexander thought that the joint venture is still the most attractive business pattern for foreign asset management companies that want to develop business in mainland China –only if the foreigners are ready to accept the internal restriction of this pattern and build an easy relation with their Chinese partners.
　　“You fire in the hole when you just step into it. You could only hurt yourself,” he said.
　　Among the 38 foreign companies setting up joint ventures, at least one company is ready to quit. According to the market export, Belgiumbased KBC Bank has spent months seeking a buyer for its 49% shares of KBC Goldstate, a joint venture it set up in China. KBC Goldstate is one of the least successful fund management companies in China. Alexander forecasted that some European financial groups, which are trapped in trouble, would sell their shares of their joint ventures in China to raise capital in the following year. Actually, the value of these joint ventures is increasing day by day.
　　For example, Alexander’s Z-Ben Advisors helped Montreal, Canada-based Power Corporation of Canada acquire 10% of the stake of China Asset Management Co, the largest asset management company in China with 270 million U.S. dollars last year. The price reveals that the value of China Asset Management Co equals 8% of the value of the assets under its management. In comparison, the sales prices of asset management companies in west countries only take 1%-3% of the assets under their management.
　　With the continuous increase in freedom of the Chinese financial market, Peter Alexander is extremely bullish on the prospect of foreign fund companies in China. Due to the forecast for strong demand, Z-Ben Advisors doubled its number of employees and expanded its business patterns in the past 14 months. Apart from selling research reports at 25,000 U.S. dollars every year, it has also begun to provide customized consultancy and commercial due diligence services with a 9-time higher price.
　　Some senior executives of fund companies sniffed at buying the consultancy services with 250,000 U.S. dollars in China, because their global business is facing the stress of greatly reducing cost. But Peter Alexander said that his company had reached agreements with some fund companies.
　　“In our opinion, it is hard to find a person who has basic understanding of China by just spending the cost of that sum,” he said.
　　He said that many foreign companies were still using the “outdated” strategies to support their operation in the complicated inland market. “We have already found out from our work that quite a few companies own real strategies for China. Some claimed so but if you make profound research and put forward questions to them, you will find that their strategies for China are very similar to the strategies they implemented in 2006 and 2007.”
　　Peter Alexander also stated that it is not enough for the foreign companies that want to earn the trusteeship in China’s pension and sovereign wealth fund – they have growing influence in the international market – by just setting up a representative office in Beijing or a front station in Hong Kong.
　　“The more platforms or access points you have, the more opportunities you will be given,”he said. In consideration of that, Peter Alexander is urging its clients to think of setting up wholly foreign-owned enterprises in China.
　　According to the Chinese rules, foreign companies have to apply for business licenses from the State of Administration for Industry and Commerce of China if they want to set up wholly foreign-owned enterprises in China. During the application, they must choose their business scope from the government-divided categories. One of the options is the “investment consultancy”.
　　Though the business activities for the wholly foreign-owned enterprises engaged in investment consultancy are within the “grey zone” of the government supervision and regulation, Peter Alexander still believed that setting up wholly foreign-owned enterprises now was a good idea, because “the platforms of wholly foreign-owned enterprises will have bigger position value in the next three years”.
　　“We believe that theoretically you can have your own wholly-owned investment consultancy companies to provide services for assets portfolio. You cannot manage assets, but you provide consultancy,” Alexander said.
　　In his opinion, the biggest challenges foreign companies face now is to know how to make use of the unclear supervision and regulation system of China, because a vast “grey zone” usually exists between being permitted by the laws and being forbidden by them.
　　The uncertainty of supervision and regulation infest in a lot of areas as diverse as the operation of trust companies and the qualified foreign institutional investors’ utilization of their investment quota. But Alexander believed that the executives would make great mistakes if they excused their undoing with this uncertainty.
　　“Undoubtedly, running business in China is accompanied with risks, big ones,” Alexander said. “In my opinion, in the past few years, people just forgot to ask themselves whether the anticipated return of this business can suffice the risk they shoulder. Ironically, this is what the asset management is.”