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Citi Transaction Services | Citi OpenInvestor
Fundamentally, distribution problems
result from supply and demand.
There are 71 fund management
companies active in China, all of
which compete for access from
the same four primary distribution
channels.
In truth, most managers
don’t even consider all the commercial
banks available, but instead focus on
placing their products on the roster
of just two — ICBC and CCB. There is
the option to distribute via brokers
— usually the largest 40 — but sales
volumes remain constantly low.
Most retail investors are already
committed to buying a particular
product, or type of product, by
the time they walk into the bank.
Consequently, despite a large number
of sales personnel, the bank’s role as
a point of sale is simply transactional.
For asset managers, this means that a
decision has already been made even
before a customer walks in the door,
and as a result, effective marketing is
of paramount importance, something
that fund managers have yet to fully
embrace (or pay for). For most FMCs,
advertising has consisted of expensive
billboards — Shanghai residents will be
familiar with them on skyscrapers and
subways — but whether these efforts
have actually made a connection with
buyers is still an open question. Trust
companies, for instance, have taken
to targeting high net worth investors:
Shanghai International Trust earlier
this year cosponsored an appearance
of the Berlin Philharmonic, and cachet
of that sort will not go unnoticed by
the frm’s target investors.
Distribution Dynamics
Throughout the last decade, China’s major banks — especially the four largest: Industrial and
Commercial Bank of China (ICBC), Bank of China (BOC), Agricultural Bank of China (ABC) and
China Construction Bank (CCB) — have been the preeminent means for accessing investors’
capital. Until recently, this has even been true of the high net worth and institutional markets.
Sheer physical reach is the primary reason for this dominance: Banks are some of the few
national institutions to have offces and staff in disparate parts of the country as well a high
degree of concentration in population centers. Another reason is simply perception — most
investors trust that offerings through banks are genuine and unlikely to be misrepresented.