The rules, released by the China Securities Regulatory Commission (CSRC) on Monday, said foreign firms can take up to a 33 percent stake in fund management companies and the ratio can reach as high as 49 percent three years after China's WTO entry.

China became a formal member of the global trade body at the end of 2001, with promises to permit Sino-foreign securities and fund management ventures.

According to the new rules, which will go into effect on July 1, foreign companies can also hold up to one third of domestic securities firms, though the Chinese party must maintain control.

Forms of foreign participation can be either through acquiring stakes in existing domestic firms or establishing new joint ventures with Chinese partners.

A CSRC spokesman said foreign participation will bring in advanced management techniques and competition to domestic companies.

Foreigners in the market "have long been expecting the rules to clear out all policy obscurity," said Yan Xiaoqing, chief representative in Shanghai of Belgium-based Fortis Investment Management. "Now it is time for the final preparation and application."

Fortis was among about 20 foreign investment banks to seek cooperation with Chinese banks, fund managers and securities firms over the past two years. Now it is working together with Shanghai's Haitong Securities Co to launch a fund management joint venture.

Yan said they are "confident to get the first batch of licences" based on years of market research and analysis and the customer resources of the Chinese partner.

Insiders said Chinese market condition will also be taken into consideration in the licensing issue.

According to the CSRC circulars, foreign firms will also be able to do both A-share and B-share contracting business through domestic securities firms or by setting up securities joint ventures.

The news should help boost market sentiment because foreign firms have been eyeing the domestic A-share market for some time, said Du Zheng, senior manager with the asset management department of the domestic CITIC Securities Co.

"Though the performance of the domestic stock market is not satisfactory at present, there is still good investment potential in the medium and long-term," he said.

However, the market response was mixed. For example, the rules required 300 million yuan (US$36.25 million) of paid-in capital for foreign partners in fund management joint ventures.

The threshold is higher than expected, said an official with the German Commerzbank's Shanghai branch.

(China Daily June 05, 2002)