Wang said foreign asset managers with a presence in China may advise their overseas clients to invest here, bringing more foreign capital into the Chinese market.

Huang Dazhi, a researcher with the Suning Institute of Finance, said increasing foreign participation will help Chinese households diversify asset allocation and reduce investment risk, given foreign players' advantage in global allocation.

"Though being less competent than local players in terms of distribution channels and client resources, foreign players are good at global asset allocation and are more advanced in corporate operations and portfolio management," Huang said, adding that foreign institutions' long-term investment philosophy will help Chinese retail investors focus more on long-term returns.

According to Huang, foreign institutions are taking part in the Chinese wealth management sector mainly by setting up subsidiaries to provide financial products themselves, or by offering investment advisory services instead.

Europe's leading asset manager Amundi's majority-owned wealth management company has commenced business in China in September, while applications from BlackRock and Schroders to set up wealth management joint ventures, respectively, have received regulatory green light.

Since China removed the foreign ownership cap in the fund industry in April last year, overseas asset managers including BlackRock, Fidelity International, Neuberger Berman, AllianceBernstein, VanEck and Schroders have applied to set up a wholly owned mutual fund manager each in China. BlackRock received the approval in August.

But, last month, US money manager Vanguard announced it has dropped the plan to obtain a mutual fund license in China. It said it will instead tap into the Chinese mutual funds market through its investment advisory joint venture with Ant Group.