Beijing will allow foreign banks to sell local mutual funds, introducing competition for domestic commercial lenders dominating the field. According to a new rule governing mutual fund distribution, issued by the China Securities Regulatory Commission, locally incorporated foreign banks and independent financial advisers will be able to apply for a sales licence from October 1. The applicants must have a registered capital of at least 20 million yuan (HK$24 million). The regulator said the new rule resulted from the third round of the US-China Strategic and Economic Dialogue in May. About 60 per cent of mutual fund sales on the mainland are carried out through domestic banks that normally charge commissions between 1 and 1.5 per cent. Asset management companies sell 30 per cent of the funds to investors, while the remainder is distributed by brokerages. 'The new rule will have a significant impact on the mainland's mutual fund distribution system,' Z-Ben Advisors research head Howhow Zhang said. 'Opening up distribution will eventually inject new vigour into the country's mutual fund industry.' The mainland's 60-odd mutual fund houses have total assets of 2 trillion yuan under management. The mutual fund sector is expected to grow fast in the coming decade as the regulator tries to encourage institutional buying and income levels on the mainland increase. But local banks will still hold the lion's share of the mutual fund distribution market, benefiting from their vast branch network, analysts say. The nation's large financial services companies, including Noah and HOWbuy, will be among the first batch of new licensed fund distributors, given that they can easily meet the capital requirements. Foreign banks and financial advisers are required to set up dedicated departments to handle mutual fund sales, according to the new rule. The financial advisers that do obtain licences to sell the funds will also be allowed to offer investment advice to clients and charge so-called value-added fees. The rates for the value-added services have not been decided. Millions of the mainland's retail investors prefer to buy shares of funds run by star fund managers, such as Wang Yawei of China Asset Management, the mainland's largest mutual fund house. However, research by Galaxy Securities shows the performance of mainland mutual funds has almost nothing to do with those who manage them.