Foreign private fund managers are now being encouraged to expand their business in China, thanks to one of the most important recent regulatory developments there.

The Asset Management Association of China, a self-regulated fund association and a de facto private fund regulator, issued several rules to this effect two or three months ago. Melody Yang, a managing associate at the global law firm of Simmons & Simmons, recently went on record as saying: "These rules allow foreign fund managers in the private sector to come to China and set up either wholly-owned foreign enterprises or joint ventures which can, if they choose, tap into China's secondary market are now welcome to set up business in China.

"By contrast with Hong Kong or Europe, there are no authorisation systems that apply to the private fund sector. On the other hand, if a firm wants to manage funds in China it ought to register with AMAC."

There are rules for foreign shareholders. Some apply to them expressly, some apply to shareholders in general. Melody Yang explained that if a foreign fund management firm wants to do its business in China it must set up a firm there, either as a joint venture or wholly owned. As a foreign shareholder, it has to pass certain tests; for instance, the jurisdiction from which it comes must have a memorandum of understanding with China's securities regulator.

Some new rules require clarification from the regulator. One states that all investment decisions and trading orders ought to be made in China rather than anywhere else, so some doubt hangs over the question of whether senior managers should be relocated there.

It has been estimated that China's AuM will be US$26 trillion by 2020.