China Dashboard April 2016 Monthly Update

www.z-ben.com Z-BEN ADVISORS Ltd. (Hong Kong) Two Exchange Square, 39/F 8 Connaught Place Central, Hong Kong SAR

Research Affiliate Z-BEN ADVISORS Ltd. (Shanghai, China) 哲奔投资管理咨询（上海）有限公司 Hongjia Tower 25/F 388 Fushan Road Pudong New Area, Shanghai China 200122 +86 21 6075 8155

Disclaimer The contents of the China Dashboard: Monthly Update (the Product hereafter) are for informational purposes only. The data contained herein is based entirely upon the available information provided in public reports by the locally operating fund managers. The contained information has been verified to the best of Z-Ben Advisors and its research affiliate’s ability, but neither can accept responsibility for loss arising from the decisions based upon the product. The Product does not constitute investment advice or solicitation or counsel for investment in any fund or product mentioned thereof. The Product does not constitute or form part of, and should not be construed as, any offer for sale or subscription of any fund or product included herein. Z-Ben Advisors and its research affiliate expressly disclaims any and all responsibility for any consequential loss or damage of any kind whatsoever resulting, directly or indirectly, from (a) the use of the Product, (b) reliance on any information contained herein, (c) any error, inaccuracy or omission in any such information or (d) any action resulting therefrom.

Disclosure Z-Ben Advisors and its research affiliate currently provides other products and services to some of the firms whose products are included in the Product. Z-Ben Advisors and its research affiliate may continue to have such dealings and may also have other ongoing business dealings with other firms whose products are included in the Product.

Copyright The duplication of all or any part of the Product is strictly prohibited under copyright law. Any and all breaches in that law will be prosecuted. No part of the Product may be reproduced, transmitted in any form, electronic or otherwise, photocopied, stored in a retrieval system or otherwise passed on to any person or firm, in whole or in part, with out the prior written consent from Z-Ben Advisors.

China Dashboard | Monthly Update | April 2016 Z-Ben Advisors | www.z-ben.com 1 Dashboard: Quick hits

March highlights An overview of the major China news during the month

Cross-border: China Post takes over RBS’ ETF unit Page 6 Insurance: Anbang bids for North American hotels Page

China Post and Capital Fund Management has bought out Market Access, Royal Anbang Insurance made two ambitious takeover bids for hoteliers in North of Scotland’s ETF unit in the UK. The transaction is valued at EUR360m. America. In the first deal, it agreed to buy Strategic Hotels & Resorts Inc. from This is the first acquisition of a British fund manager by a Chinese FMC. A Blackstone. A second, larger, deal pitted it in a bidding war for Starwood number of fund managers and bank-backed asset managers have made Hotels. Despite putting in a higher offer, it eventually withdrew. The USD14bn inroads in Europe but this acquisition marks a change of strategy away from transaction would have been Anbang’s largest offshore investment to date. organic growth through a local entity. Anbang has been among the most aggressive insurers offshore.

Cross-border: Shenzhen, London Connects imminent Page 6 Trusts: Four trusts inject new capital Page 1

New links to China’s stock markets are imminent. The LSE has indicated its link to Even as foreign interest in the trust sector wanes, four domestic trust companies the SSE will be ready at the start of 2017. CSRC followed on this, hinting at a have completed new capital injections. Notably, Bridge Trust also raised its different structure from the existing Hong Kong-Shanghai Connect. CSRC also registered capital, with foreign partner JP Morgan participating, in contrast confirmed that the Shenzhen Stock Connect will be launched before the end of with other foreign participants that have allowed dilution of their stakes. the year, which will need at least four months of preparation. The Shenzhen Others that increased their capital were Zijin Trust, Chang’an Trust and connect was first proposed in mid-2015 Everbright Xinlong Trust.

Capital Markets: CFFEX preparing new bond futures Page 7 Brokerages: Profits surge in 2015 Page 12

The China Financial Futures Exchange is set to expand the available futures All releasing their annual reports, China’s listed brokerages posted record contracts from the five currently available to include two-year treasury bonds. revenue and profit growth. Their earnings were all boosted in the first half of Ten- and five-year treasury bond futures were reintroduced in 2013 after an 2015 as a bull market saw increased market turnover as well as from IPOs. 18-year hiatus. The new futures contracts will give investors additional tools for Orient Securities had the fastest profit growth, up 181% YoY, followed by trading and hedging and add diversity to China’s capital markets. Lianxun Securities with 177%.

China Dashboard | Monthly Update | April 2016 Z-Ben Advisors | www.z-ben.com 2 March in a nutshell

Foreign exchange reserves (USD bn) Northbound Connect daily aggregate usage (RMB bn) Global market share of RMB payments

3,800 128 3,700 126 3.0% 3,600 124 2.5% 3,500 122 3,400 2.0% 120 3,300 1.5% 118 3,200 1.0% 3,100 116 0.5% 3,000 114

2,900 112 0.0% Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 1-Mar 6-Mar 11-Mar 16-Mar 21-Mar 26-Mar 31-Mar Jul-15 Aug-15Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16

CSI 300 and A-share margin balance 3,500 880

3,250 855

3,000 830 RMB (bn) 2,750 805

2,500 780 1-Mar 8-Mar 15-Mar 22-Mar 29-Mar

CSI300 Margin Source: Z-Ben Advisors, WIND, AMAC

Z-Ben Advisors CONFIDENTIAL 3 Chart of the month

China’s largest listed insurer’s disclose their asset allocation for 2015

Largest listed insurer asset allocation, 2015

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% China Life Ping An CPIC New China Life PICC

Fixed-term deposits Bonds Stocks Funds Investment property

Source: Z-Ben Advisors, China Life, Ping An, CPIC, New China Life, PICC

China Dashboard | Monthly Update | April 2016 Z-Ben Advisors | www.z-ben.com 4 Regulatory updates

CSRC PBoC

CSF to stay active in equity market Heightened volatility at the start of the quarter PBoC governor Zhou Xiaochuan indicated that Credit default swaps for bond market China Securities Finance Corp will remain The central bank is leading a study on the active in the A-share markets according to underscored the need for continued stabilizing the central bank is moving towards use of more possible implementation of credit default CSRC. The institution’s role rose to prominence measures in the equity markets. CSF’s role had subtle tools to manage liquidity and interbank swaps in the domestic bond market. Credit as it became the vehicle used to stabilize the default swaps are currently only available market during 2H15. been expected to recede and its holdings rates. This is in line with its adoption of a for debt issued offshore.

transformed into a passive market tracker. A macro-prudential assessment (MPA) system. The Brokerages to clear illegal accounts Interest rate corridor CSRC gave direction to domestic brokerages to continued active presence, or signalling of such, ability to finely calibrate interbank demand for PBoC is building out an interest rate corridor clean up all illegal trading accounts, is likely intended as an anchor for investor central bank reserves will give it flexibility in in order to enhance the effectiveness of open particularly those tied to the New Third Board. market operations as a monetary policy tool. Brokerages will conduct internal self-evaluation confidence. At the same time, CSRC continues to managing market liquidity, reserving other The central bank earlier adjusted its internal and give detailed reports to the regulator. clear the market of illegal activity. monetary policy tools for different uses. rules, allowing intra-day open market operations, up from bi-weekly.

Analysis

State Council CBRC In addition to capital market reforms, State NCSSF offshore investment upgraded Throughout March, CBRC concentrated its Improved information disclosure State Council released detailed guidelines for Council has directed its attention at further CBRC issued a notice to all and trusts, the development of the pension system, efforts on strengthening risk management using developing the core capabilities of different giving guidance on improved information explicitly defining NCSSF’s ability to make pre-existing policy measures. CBRC made disclosure. Regular disclosure has been offshore allocations. institutions. NCSSF now has explicit permission extended to internal organizational structures special note of the 68 domestic trusts in its to re-allocate funds raised domestically into and description of executives’ duties as well Strategic industry board postponed guidance on information disclosure. Improved as guarantee and insurance systems for clients. The Strategic Emerging Industry board for the offshore markets. This is a big step up from SSE was omitted from the 13th five-year plan information disclosure is intended to maintain current systems, which were largely constructed Online finance regulation strengthens submitted to the National People’s Congress favorable sentiment among investors and the CBRC has led the formation of an industry for ratification. Regulators have stated it to allow NSSF to manage (passively) the self-regulating body for online financial requires further evaluation prior to general public as the trust sector, and certain proceeds of SOEs’ foreign IPOs. The new policy services covering P2P lending and payments. implementation. banking business lines, have often been opaque. It will increase oversight and cooperation with was first drafted in 2015. other regulators. It will also outline measures for information disclosure and internal control.

China Dashboard | Monthly Update | April 2016 Z-Ben Advisors | www.z-ben.com 5 Cross-border activities

Updates Analysis Data

Vanguard increases ETF A-share position Vanguard’s FTSE Emerging Markets Index ETF made the switch to A-share exposure in ETFs managed by Vanguard increased Foreign holdings of domestic bonds in March to 2.28% from 2.22% in January, indicating a 20% advance a transitional A-share tracker in June 2015. this was followed by in its A-share exposure. In the middle of 2015, Vanguard a large RMB10bn RQFII quota grant in Australia, tripling this in 1% announced it would gradually increase the A-share exposure 1% 8% of its flagship emerging markets ETF. January 2016. Vanguard is now the leader in non-Chinese RQFII access at a combined RMB30bn (USD4.6bn), demonstrating the 7% FTSE Russell creates new China index FTSE Russell launched a new index, the China A-H 50 Index. firm’s long-term commitment to the A-share market. More This is the index provider’s first tracker combining A- and H- managers are expected to follow suit if FTSE and MSCI elect full shares. Deutsche AWM is the inaugural licensee for an ETF that will be dual listed on the LSE and Deutsche Börse. inclusion of A-shares at their next annual reviews.

New QFIIs granted quota 83% New QFII licensee Rongtong Global Investments was granted Net quota allocation in March totaled USD156m as ten institutions USD500m in quota while CDH Investments was awarded an saw their quota reduced. BMO Investments, additional USD500m for a total of USD850m and CICC’s allocation was doubled to USD600m. (HK), UBS SDIC (Hong Kong) and Van Eck Associates had all their Government backed bonds Corporate bonds Bank bonds Non bank financial bonds CDs Others quota removed. Their names were also removed from the registry Shenzhen Connect confirmed QFII quota changes in March CSRC confirmed that the Shenzhen Stock Connect will be of QFII licensees. The numbers likely do not accurately reflect launched before the end of the year, echoing exchange Quota Change Current Quota changes resulting from SAFE’s reform of the quota system early in Company officials who stated that all systems are in place. Meanwhile, (USD m) (USD m) the head of the London Stock Exchange indicated its link to February as it continues with implementation. Shanghai will be operational early in 2017. Commerzbank AG -300.0 20.0 Harvard College -150.0 50.0 SAFE gives international investment report China Post deliberately sought an established UCITS fund CDH Investment Advisory 500.0 850.0 SAFE released the international financial report showing SinoPac Securities Investment -20.0 80.0 China’s international investment position by the end of 2015. manager, rather than build a European product range from the Taikang AM -50.0 470.0 It shows that China’s overall foreign debt stood at USD1.4tr ground up as is being done by ICBC, CCB and BOC. The CICC Asset Management 300.0 600.0 by the end of the period. Keywise Capital Management -44.0 31.0 manager intends to cross-list Market Access’ ten ETFs in Hong Greystone Investments -80.0 20.0 China Post takes over RBS’ ETF unit Kong. China Post will take advantage of a familiar European Rongtong Global Investment 500.0 500.0 China Post Global, China Post and Capital Fund BMO Investments -100.0 0.0 Management’s Hong Kong holding platform, acquired brand name and its experience in Hong Kong to develop Guosen Securities -200.0 0.0 Market Access, Royal Bank of Scotland’s ETF unit, for products in both markets. Chinese financial companies have been EUR360m. This is the first acquisition of a British fund UBS SDIC Asset Management -100.0 0.0 manager by a Chinese FMC. increasingly acquisitive in Europe and more fund managers may Van Eck Associates -100.0 0.0

follow China Post’s example. Source: Z-Ben Advisors, SAFE

China Dashboard | Monthly Update | April 2016 Z-Ben Advisors | www.z-ben.com 6 Capital markets

Updates Analysis Data

CFFEX preparing new bond futures The new futures contracts will add diversity to China’s capital The China Financial Futures Exchange is set to launch new Equity market futures products. The new contracts will be based on two- markets and give investors additional tools for trading and CSI 300 Index (Sep-Feb)

year treasury bonds. CFFEX currently offers five- and ten- hedging. In addition to the five futures contracts currently offered, 4,000 year treasure futures and equity index futures. ETF options are available for select funds traded on the SSE and 3,750 National team continues buying SZSE. As the market continues to mature, new derivatives products Annual company reports released in March show that buying 3,500 by China Securities Finance Corp. placed it on the list of are expected to be introduced. China has the third largest bond significant shareholders in 26 firms. Members of the national market globally and added diversity should be a boon for its 3,250 team were listed on the significant shareholding rosters of Monthly return: 12.8% 137 companies among those that have published reports. efforts to draw in foreign investors. 3,000 CNH Hibor turns negative The overnight RMB lending rate in Hong Kong dipped to - 2,750 3.7% on March 30. This is its lowest level since the 30-Sep 31-Oct 30-Nov 31-Dec 31-Jan 29-Feb 31-Mar benchmark was launched in June 2013 and the first time it has turned negative. Source: Z-Ben Advisors, WIND CNH Hibor hit an historic level in January, rising sharply to 66.8% First SSE delisting due to fraud as offshore RMB liquidity receded. The negative turn is attributed Bond market The Shanghai Stock Exchange has completed the first ChinaBond Aggregate Index company delisting as a consequence of corporate fraud. to banks in Hong Kong selling off RMB prior to rolling over their ZhuHai BoYuan Investment was first placed on the positions as PBoC’s required reserve ratio was implemented. 122 exchange’s watch list in March 2015. Monthly return: 0.5%

PBoC releases monthly bond market statistics Total bond issuance in March reached RMB4tr, 120 approximately equal to total bond issuance in January and February combined. 2016’s issues have already reached approximately 36% of last year’s total of RMB22.3tr. Yurun’s missed payment triggered a cross-default provision in a 118 separate loan, forcing the acceleration of RMB1.45bn of debt. Bond defaults at large industrial firms March saw two significant bond defaults as companies Paper defaults are becoming more common, as Guosen Securities missed scheduled payments. Yurun Food was unable to make breached guarantee covenants in an offshore bond, leading to the a payment on RMB500m of short-term notes while state- 116 30-Sep 31-Oct 30-Nov 31-Dec 31-Jan 29-Feb 31-Mar backed Dongbei Special Steel Group missed a repayment potential acceleration of the RMB1.2bn issue. The bond defaults of RMB852m in principal and interest. are still a good opportunity for the domestic bond market and its participants to refine risk pricing. Source: Z-Ben Advisors, WIND

China Dashboard | Monthly Update | April 2016 Z-Ben Advisors | www.z-ben.com 7 Insurance sector

Updates Analysis Data

Insurance overseas investment hits USD36bn Insurance assets invested offshore exceeded USD36bn by The offshore allocation now accounts for 2.02% of total insurance Asset allocation the beginning of March. This represents growth of 51% from assets, far below CIRC’s cap of 15%. Property in developed Allocation in 2015 (monthly) the end of 2014. 100% markets has been a popular investment choice among insurers Foresea Reinsurance approved such as Anbang. Following the introduction of China’s risk CIRC approved the establishment of Foresea Life Insurance. Its shareholders include China Post Group and Foresea oriented solvency system (C-ROSS) we believe insurers’ Financial Group. The latter controls Foresea Life Insurance, a international portfolios will move away from large-scale trophy fast growing insurer noted for an unsuccessful hostile bid for 50% property developer Vanke. assets into developed market fixed income and equities.

Aeon’s AM subsidiary approved Aeon Life Insurance received approval from CIRC to 0% establish an asset management subsidiary. The new As the lead in a consortium of investors, Anbang entered a subsidiary, also located in Dalian, will have initial registered Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 capital of RMB100m. bidding war for Starwood hotels that pitted it against the Deposits Bonds Funds & Stocks Others

Marriott Group. The insurer’s aggressive outbound investment in Source: Z-Ben Advisors, CIRC Anbang bids for North American hotels Anbang Insurance made two large bids for hotels in North the past two years have greatly increased its offshore Premium income America. It agreed to buy Strategic Hotels & Resorts Inc. allocation. After agreeing to the Strategic Hotels deal, the from Blackstone for USD6.5bn. However, a USD13.6bn offer Premium income (monthly) for Starwood Hotels was ultimately withdrawn. acquisition of Starwood would have brought it uncomfortably close to CIRC’s 15% cap for overseas asset allocation and may 800 100% Insurance sector equity exposure The total value of company stocks held by China’s listed have been a consideration in withdrawing the final offer. insurance companies reached RMB412bn by the end of 600 March. The average allocation per company to the equity market stands at 6.14%. CIRC has turned its attention to duration mismatches in insurance 400 50% CIRC standardizes short and mid term life products products over the last few months. This is part of an initiative to The insurance regulator issued new guidelines to standardize short- and medium-term life insurance products. This is part enhance the solvency of the sector. The new guidance formally 200 of a continued effort to minimize duration mismatches defines short- and medium-term life insurance products, linking between assets and premiums. 0 0% this to relevant asset pools and sales methods. As a result of Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 continuing regulatory changes insurers are expected to wean Premium YoY Growth % (right) themselves off higher-risk investment products. Source: Z-Ben Advisors, CIRC

China Dashboard | Monthly Update | April 2016 Z-Ben Advisors | www.z-ben.com 8 sector

Updates Analysis Data

Fee income rises 60% in 2015 Total fee income for China’s mutual fund sector in 2015 was Fees earned by mutual fund managers exceeded expectations. Top 50 FMCs by market share RMB47.5bn. This represents a 61% increase from the total at The large increase from 2014 may be attributed to the large Estimated mutual fund sector market share (March) the end of 2014. Trail fees grew faster, increasing by 73% 0% 5% 10% number of equity funds launched while the A-share market made from the end of 2014 to RMB8.8bn. Tianhong ChinaAMC strong gains the first half of the year, which met good fundraising, E Fund SWS MU gains QDII license ICBC CIRC has granted SWS MU Fund Management a QDII as well as subsequent switching to other fund types as investor CCB Principal GF license. No quota has yet been awarded by SAFE. SWS MU risk preferences changed. In total, 11 FMCs exceeded RMB2bn in Southern will be able to create offshore products once quota is given. Harvest fee income, including Huaxia Fund, E Fund, ICBC Credit Suisse, BOC No new quota has been awarded since 1Q15. China Merchants Tianhong and Harvest Fund Management. China Universal Bosera MRF update Fortune SG Two funds from Bosera, the Bosera Credit Market Bond Fund Penghua and Bosera Value Mixed Fund were approved by Hong Fullgoal Hua An Kong’s SFC. Three funds, from ICBC Credit Suisse, Hang Managers have in the past been reluctant to liquidate funds. So Yinhua Seng and Franklin Templeton Sealand, began distribution Da Cheng far, 29 funds have been wound up including the two from Huatai-PineBridge after earlier approval. AEGON-Industrial ChinaAMC. Zhongrong has called a meeting to decide on the first China International Lion ChinaAMC liquidates two ETFs classified fund liquidation in the industry. Resolution of the funds ABC-CA ChinaAMC completed the first liquidation of a domestic ETF. UBS SDIC Guotai It liquidated two funds: the ChinaAMC Shanghai composite came after AUM remained below the minimum threshold of Rongtong materials ETF and the ChinaAMC SSE Energy ETF. The two RMB50m. While the number is small it indicates an increasing BOCOM funds had AUMs of RMB22m and RMB30m respectively prior CIB Minsheng Royal to winding up. willingness by managers to dispose of less attractive products, Everbright Pramerica Huafu even as they aggregate AUM through new launches. Great Wall Everbright Pramerica GM exits Great Wall Everbright Pramerica Asset Management saw the exit of its Zhong Ou China Post & Capital Domestic party share General Manager, Mr. Tao Geng. He is the sixth GM to Baoying leave a domestic FMC since the start of 2016. A total of 35 Harvest is the first FMC to set up a standalone PE subsidiary. The China Life AMP Foreign party share senior executives have resigned from 30 FMCs this year. Galaxy reverse is more common, with PE and private fund managers Huashang Chang Xin Harvest expands into PE seeking public mutual fund licenses. So far, four PFMs have sought BOSC HFT Harvest Fund Management completed an investment into JD mutual fund licenses, including Chongyang – the largest – and CITIC-Prudential Finance, the online finance unit of JD.com. The investment was Changsheng SWS MU made through its private equity subsidiary, the first PE Gopher, IFA Noah’s subsidiary. FMCs have longer experience with GTJA Allianz manager controlled by a domestic FMC. Ping An-UOB different distribution partners, which may benefit products Zhongrong -SPDB launched by Harvest’s subsidiary. Teda Source: Z-Ben Advisors, WIND

China Dashboard | Monthly Update | April 2016 Z-Ben Advisors | www.z-ben.com 9 Banks

Updates Analysis Data

Banks to begin debt for equity swaps Chinese banks will begin swapping some loans issued to Despite continued growth of non-performing loans across the Fund distribution companies for equity. BoC and CCB have indicated that the banking sector, companies in fast-growing segments of the Distribution and number of funds launched (March) pilot scheme will not be restricted to swapping of non- 7 performing loans. economy are still faced with a shortage of funding. Equity

investment will allow more companies to access financing. The 2 17 Private equity pilot for banks CBRC will allow banks to conduct private equity investments swaps widen the banks’ options for dealing with NPLs while the PE through a pilot scheme. The banks selected will do this either scheme will provide a wider pool of funding for their investments. 6 by setting up funds or special purpose vehicles.

Slowest profit growth in ten years Net profit in the banking sector grew only 2.4% in 2015, the slowest since 2005. Fast growth in previous years has been Regulation of companies in the internet finance space has been 9 hit by increase in non-performing loans as well as narrowing uncertain despite fast growth seen in the segment. PBoC and 11 interest margins. CBRC introduced tighter measures for online payment providers BOC ICBC CCB Minsheng ABC Other Fintech industry self-regulating body launched and P2P lenders in 2015 as a prelude to substantive regulation. Source: Z-Ben Advisors, WIND PBoC together with CBRC and the Payments and Settlement Association have launched a self-regulating industry body ITFIN will be responsible for registering companies as members, Bank wealth management products for companies involved in internet finance called ITFIN. The No. of products launched (March) drafting common measures for core systems management and association began operating on March 25. 610 enforcing self discipline. New Bank QDII products 540 Three new bank QDII products were put op for sale in March. 470 DBS offered two new funds from one global manager, the Global Strategic Management Fund and the 400 Investec Investment Grade Bond Fund; HSBC began selling Growth in non-performing loans on the books of domestic banks 330 the JPM Global Bond Fund have been a cause for concern, but regulators maintain they are 260 Three banks begin NPL securitization within manageable levels. Securitization will have the dual 190 Three banks, ICBC, BoC and CCB, have began securitizing benefits of diversifying the banks’ funding towards longer-term their non-performing loans under a pilot scheme by CBRC. 120 NPLs in the sector rose to 1.67% of assets by the end of sources and adding depth to the onshore credit market. As CBRC 50 2015 from 1.25% a year prior. implements Basel III domestically, banks will gradually be held to CCB ABC BOC CMB Jiangsu Ping An Nanjing Hua Xia BoComm

higher liquidity and overall capital standards. Minsheng RMB products Foreign currency products Source: Z-Ben Advisors, WIND

China Dashboard | Monthly Update | April 2016 Z-Ben Advisors | www.z-ben.com 10 Trust sector

Updates Analysis Data

Trusts implement new rating system The CRIS system involves three steps: self assessment, panel China’s trust companies have now begun implementing the Top 30 trusts by products launched China Trustee Association’s (CTA) new self-rating and review and a final score. The assessment looks at 11 key areas No. of products launched (March) assessment system (CRIS). The ratings, which look to measure including capital adequacy, risk management, liquidity and the 0 10 20 30 40 50 the strength of their risk management, will be made public. cost-to-income ratio, among others. The results of the assessment Sichuan Trust Ping An Trust New product fundraising declines 19% will be announced annually at the end of April. Due to the public The AUM for newly launched trust products declined by CITIC Trust 18.71% YoY in 1Q16. The largest decline was seen in nature of the ratings, trusts are under more pressure. Since 2014 Everbright Xinglong Trust securities investment trusts, declining by 55.62% YoY. CTA has undertaken continued steps both to make the industry Wanxiang Trust Zhongrong International Trust Four trusts inject new capital more market-oriented and transparent. Bridge Trust Four domestic trust companies have completed new capital Huaxin Trust injections, raising their aggregate registered capital. They CCB Trust are: Bridge Trust, Zijin Trust, Chang’an Trust and Everbright The largest trust company by registered capital is Chongqing Trust Xinlong Trust. All four saw pro rata contributions from AVIC Trust existing shareholders, leaving ownership structures intact. at RMB12.8bn after a new injection in 2015. China’s companies Zhongyuan Trust have continually raised their capital levels since 2014 as CBRC Beijing International Trust Tianjin steel default hits trusts China Fortune International Trust Products by National Trust, Tianjin Trust and urges stronger risk buffers. Of the new batch, Minsheng has the JIC Trust are facing liquidity and acceleration pressure. The products largest increase, up from RMB3bn to RMB7bn; Bridge Trust had COFCO Trust were invested in defaulted bonds issued by Tianjin Iron and China Resource SZITIC Trust the narrowest jump, up by RMB800m to RMB2.2bn. Awaiting Steel Group. The parties have negotiated an extension to BoComm International Trust repayment and may take a haircut on the principal. approval for capital injections are Minsheng and Anxin Trust. Shandong International Trust

Yunnan International Trust Zhejiang Orient buys into Zheshang Jinhui Trust Hwabao Trust Zhejiang Orient Holdings purchased 56% of stakes of Structural changes continue in the industry, most evident as the Zheshang Jinhui Trust from Zhejiang International Group. This Huarong Trust is the only trust company owned by brokerage, CICC, with a importance of core businesses declines, with three of the five Lujiazui International Trust 35% stakes. companies with the fastest-growing profits having core-business Minsheng Trust Xiamen International Trust Sino-foreign revenue growth under 5%. Meanwhile, five companies (CITIC Taikang SDIC approved for ABS issuance Suzhou Trust Domestic Taikang SDIC Trust has received approval to begin issuance Trust, Pingan Trust, Zhongrong International Trust, CRC Trust and Zhongtai Trust of asset-backed securities. Currently, 27 trusts have Chongqing International Trust) make up more than 31% of Chongqing International Trust approval for ABS issues, with CITIC, Jiangxi Trust, Beijing Dongguan Trust Trust, Shanghai International Trust and China Resources Trust industry revenue and annual revenue declined in 15 companies. Shanxi Trust controlling 54.2% of the market. AJ Trust This trend is expected to continue as profit margins and investable assets decrease, leading to business diversification. Source: Z-Ben Advisors, WIND

China Dashboard | Monthly Update | April 2016 Z-Ben Advisors | www.z-ben.com 11 Brokerage sector

Updates Analysis Data

Brokerage profits surge in 2015 Brokerage fees remain the leading contributor to income for the China’s listed brokerages increased their profits by 110% on Individual share trading accounts average according to annual reports released in March. sector. This was enhanced by a bull market in the first half of A-share account openings (weekly, m) Leading in growth was Orient Securities, up 181% YoY, 2015. Strong market conditions then also favored proprietary 105 followed by Lianxun Securities with 177%. investment, the next largest income segment. A deterioration of Brokerages begin share buybacks market conditions impacted revenue in the second half of the 103 Guoyuan Securities and Industrial Securities began buying back RMB470m and RMB385m of their own shares, year. This has persisted with profits at 21 of the 24 listed respectively. The large buybacks are intended to enhance brokerages slipping on average 59% YoY during February 2016. 100 investor confidence in the companies. Improving conditions and investor sentiment, as well as the return

Brokerages loosen margin trading requirements of IPOs, may boost revenue across business lines during the year, 98 Ping An Securities and GTJA increased their conversion rates for margin trading in March. The lower requirements mainly however, these may fall short of 2015 figures. apply to blue-chip, yield and growth stocks. A number of brokerages have loosened requirements for margin 95 Dec2 183 Dec4 315 Jan6 157 Jan8 29 9 Feb10 1911 Mar12 4 13 Mar14 25 Ping An to open joint trading-insurance accounts trading following CSRC’s adjustment from a 50% to a 100% Source: Z-Ben Advisors, WIND Ping An securities became the first brokerage allowed to link individual insurance accounts to securities brokerage accounts. equity margin requirement in November, although the majority of Institutional share trading accounts The new functionality will be piloted among select brokers brokerages claim these are standard adjustments based on A-share account openings (weekly, thousands) and greatly hastens the account-opening process. assessments of the target companies. Margin trading totals 276 New JV brokerages in approval pipeline reported a record series of drops in late January and hit a 15 272 Two new joint venture brokerage companies are in the 268 approval phase for operating licenses. CSRC’s updated list month low in late March at less than RMB840bn. shows Yunfeng Securities, affiliated with Alibaba’s Jack Ma, 264 and Jinghua Securities, backed by Renaissance Capital. 260 The funds entrusted to CSF may in the future be recognized as 256 CSF losses hang over brokerages losses. Despite the sharp mid-year correction reversing, the equity Brokerage reports indicate that the sector has unrealized 252 losses of up to 5% - attributed to China Securities Finance market ended the year far below its peak in June. Among the 248 Corp (CSF), which took the lead in stabilizing the equity largest brokerages to entrust funds with CSF in this period were 244 market in the summer of 2015. CITIC, GF and . CSF’s summer efforts were 240 exceptional and regulators have taken steps to avoid a repeated 236 Dec1 252 Jan3 8 4 Jan5 22 6 Feb7 5 8 Feb 269 10 Mar11 11 12 Mar13 25 sharp correction, meaning these losses – once realized – are

unlikely to be repeated. Source: Z-Ben Advisors, WIND

China Dashboard | Monthly Update | April 2016 Z-Ben Advisors | www.z-ben.com 12 Private (hedge) funds

Updates Analysis Data

Shanghai suspends registration detail changes Shanghai’s Industrial and Commercial bureau suspended any China’s industry has developed rapidly with oversight Private funds new amendments to the registration details of private fund only now catching up. From the start of the year, business Number of private funds launched and total AUM per month managers. Individual changes are still possible through 2,000 17500 interviews with the bureau. registrations have been tightened in a number of cities. AMAC has also issued draft measures for the PFM industry aimed at better 14000 1,500 New regulations hit fundraising defining the scope of business for all participants. Global WIND data shows that new fundraising in January and managers have been increasingly looking to this channel as a 10500 February declined 75.2% YoY. A total of 344 new products were launched raising RMB4.43bn for private fund means for fast entry into the domestic asset management market. 1,000 managers. This comes amid a tightening of regulations We believe the suspension is temporary and will leave the 7000 targeting managers engaging in the domestic PF business. industry in an overall better shape. 500 3500 AMAC conducts manager Q&A sessions AMAC has hosted a series of Q&A meetings in several large The event in Shanghai alone had 4000 firms registering for the cities including Beijing, Shanghai, Shenzhen, Hangzhou and 0 0 Suzhou. The meetings were held to give clarity on regulatory 1000 spaces available, while a number of firms registered in Jul Aug Sep Oct Nov Dec Jan Feb changes that have been made for PFMs. multiple cities due to a limited ability to ask questions. AMAC has AUM (RMB bn) No. Funds (right)

initiated a number of changes to PFM registration since the end of Source: Z-Ben Advisors, WIND Manager investigated over performance fees 2015 which has drawn the attention not just of firms but also their Private fund performance AMAC began investigating one private fund manager due to Top-performing private funds: 1m and 12m returns high performance fees charged to investors. While PFMs are professional service providers. Clarity on these changes is free to define their fees, these must be disclosed to investors necessary as firms seek to avoid being de-registered. beforehand. Fund Name 1m Fund Name 12m

Golden Ding Variant 108.6% Wealth No. 1 2287.6%

Modern Prosperity No.3 108.2% Weihang Strive 1083.2% AMAC discloses fourth batch of missing managers Of the managers which have broken contact, nine specialize in Growth AMAC released the latest list of private fund managers it China Select Allocation 107.4% Citic Balanced Large 616.5% has lost contact with. The list contained a total of 15 PFMs. equity funds while the oldest of the set was established in 2014. Ultimate Surplus No.2 62.7% Yufeng Green B 582.5% AMAC has previously released three such lists. Managers The loss of contact is a concern as in the first list released by that persistently break contact risk losing their registrations. Jin Song (Phase C) 56.7% Resilient Dragon 573.6% AMAC, two managers had absconded with investors’ money. As

the private fund industry is becoming more visible, this case Average 88.7% Average 1028.7% CSI300 11.8% CSI300 -20.6% highlights the necessity to perform extensive due diligence on

domestic PFMs, particularly when issuing mandates. Source: Z-Ben Advisors, WIND

China Dashboard | Monthly Update | April 2016 Z-Ben Advisors | www.z-ben.com 13