China has approved the establishment of fund management ventures by local commercial banks, which is expected to attract foreign money managers seeking partners in the country.

The move is a breakthrough in the Chinese financial sector because the government has until now prohibited banks from directly owning securities companies.

Formal regulatory rules will likely be released this year.

Prior to this, Chinese banks began preparations to enter fund management and have been in discussion with potential partners.

The banks could have one or two foreign partners but the foreign stake would be limited to 33 percent.

Allowing commercial banks into the fund management business is considered an important reform.

Previously, banks were too reliant on revenue from the difference between loan and deposit rates.

The reform will also enable more funds to flow into the stock market.

(CRI.com November 12, 2004)