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Opening Up to Collaborations: A Summary of the 2021 Finance Panel

April 22, 2021

Closing ceremony at the 24th Harvard College China Forum, held in Beijing, China on April 17th, 2021

 

As China’s financial market currently sits at a historic developmental period of integration with the global market, the Finance Panel of this year’s Harvard College China Forum invited Levin Zhu (Financial Expert), Wang Yan (China Head, Bridgewater Associates), Eric Pan (Chairman and CEO, The Investment Company Institute), and Thomas Cheong (Executive Vice President and President, Principal Financial Group). Joined and moderated by Li Zhong, Chief Compliance Officer of Noah Holdings, panelists discussed the opportunities and challenges of China’s capital market opening-up to the greater world. Specifically, the exchange touched on the space for win-win cooperation, the potential of China’s financial market and investment opportunities, investor demand and the implications of cross-border asset allocation, the history and experience with overseas development of supply-side structural reforms, and financial institutions’ goals in carbon neutrality and related ESG objectives. 

 

Finance expert Mr. Levin Zhu speaks to the audience during the finance panel

 

Through observing historical data and underlying trends, finance expert Mr. Levin Zhu analyzed the growth process of China’s financial market, the challenges in the development process, the significance of opening-up to the world, and long-term potential and opportunities in the future. At the forum, Mr. Zhu explained to attendees that in the past 30 years, the overall scale of China’s capital market and its impact on the economy have made systematic progress, fostering the necessary conditions and foundation for opening-up both domestically and abroad. Going forward, the acts of further continuing internal reform and increasing the appeal of the market will be essential in facilitating the steady progress of opening-up. In the future, China still has room and potential for further expansion in the globalarena. On one hand, the orderly expansion of two-way opening-up will help Chinese companies make better use of overseas capital, promote healthy competition between domestic and foreign institutions, and better learn from international perspectives in pension management and other areas of focus. On the other hand, the ultimate objective of opening-up is to maximize citizen benefits. Naturally, this goal is accomplished by competing with outstanding foreign companies, promoting the progress of domestic institutions and strengthening global assets, all while alleviating excess stress surrounding domestic residents’ pensions and other related issues.

 

President of The Investment Company Institute (ICI) Mr. Eric Pan joins the discussion over Zoom

 

In his introduction, Mr. Eric Pan — President of The Investment Company Institute (ICI) — shared that as of the end of February 2021, AUM of China’s asset management industry has grown to $3.32 trillion,a 56% increase from the $2.13 trillion at the end of 2019. Excluding money market funds, China is currently the world’s fourth largest asset management market, and this growth trend is expected to continue. However, despite the strong growth of its AUM, China’s mutual fund industry is still in an early stage of development. According to ICI’s research, China’s fund assets account for approximately 10% of the capital market share, as compared to 30% in the United States. If the history of the US asset management market serves as a growth model, then China has enormous growth potential. Should global expertise bring about new product concepts, technologies, and skills, as well as standards and techniques for risk management, monitoring and control, such knowledge sharing and integration will foster a larger, broader, and deeper competitive environment, providing an excellent learning opportunity for Chinese domestic managers; ultimately, this environment will better prepare them for entrance in the world market. Undoubtedly, competition will promote the healthy development of China’s asset management industry. Among the top 20 domestic managers based on AUM, 12 are Sino-foreign joint ventures, a very positive signal for both sides: foreign investment companies have a place in the Chinese domestic market, and local investment companies also respond well to competition both at home and abroad.

 

Mr. Thomas Cheong of Principal Financial Group engages in conversation with Mr. Eric Pan

 

Mr. Thomas Cheong— Executive Vice President of Principal Financial Group and President of Principal Asia — pointed out in his speech that pension funds can develop concurrently and positively interact with the capital market. As China’s population ageing continues to trend upwards, China’s pension reform has a long way of development ahead. At present, while China has initially established a three-pillar pension system, the first and dominant pillar, especially the basic public pension(BPP), bears incredible pressure. Meanwhile, the coverage of the second pillar is relatively limited, and development of the third has just begun. In essence, investment of pension funds still lacks sufficient asset allocation and diversification. In addition, another possible consideration may be to establish a connection or rollover mechanism between different pillars to enhance the portability of pension. In this regard, emerging markets such as Brazil and Chile have successfully implemented pension reforms, building the second and third pillars from scratch, alleviating financial pressure on the first pillar, and enhancing the balance and sustainability of the pension system as a whole. All these experiences and insights serve as significant references for China, as more new expertise enters while China gradually opens up its pension market to foreign players. 

 

President of Bridgewater Associates China Mr. Wang Yan shares his insights with the audience

 

Mr. Wang Yan — President of Bridgewater Associates China — shared his perspective on asset allocation and risk diversification in China’s capital market. As a global macro investment enterprise, Bridgewater reaps β returns by using risk evaluation models to assess differences in countries, regions and economic environments, and allocating assets based on different asset classes and by risk type. Bridgewater hopes to share its investment methodology and philosophy with Chinese investors in the services sector, and in the long run, help Chinese investors reap better β returns. Generally, achieving stable β returns requires consistent and in-depth investment research. Mr. Wang Yan shared that Bridgewater has a strong investment and research team that uses data mining and AI technology to perform due diligence on productivity growth environments, debt cycles, business cycles, and political environments. Additionally, both a mismatch and low allocation are present in risk diversification. With diversified growth potential, China is a good choice for investment risk diversification. Going forward, with 5G, Internet, cloud computing, cloud storage, machine learning, mobile payment all acting as key driving forces, it would be difficult to find similarly large-scaled growth potential in other regions. It is then evident that the continued opening-up of China’s capital market will also make way for greater and more opportunities.

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