China moves to open market for financial firms in historic step
Hong Kong, China - China took a major step toward the longawaited opening of its financial system, saying it will remove foreign ownership limits on banks while allowing overseas firms to take majority stakes in local securities ventures, fund managers and insurers.
The new rules, unveiled at a government briefing on Friday, will give global financial companies unprecedented access to the world’s second-largest economy. The announcement coincided with Donald Trump’s visit to Beijing and bolstered the reform credentials of Chinese President Xi Jinping less than a month after he cemented his status as the nation’s most powerful leader in decades.
Foreign financial firms applauded the move, with JP Morgan Chase & Co and Morgan Stanley saying in statements that they’re committed to China. UBS Group AG said it will continue to push for an increased stake in its Chinese joint venture. While China has already made big strides in opening its equity and bond markets to foreign investors, international banks and securities firms have long been frustrated by ownership caps that made them marginal players in one of the fastest-expanding financial systems on earth.
“It’s a key message that China continues to open up and make its financial markets more international and market-oriented,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd in Hong Kong. “How important a role foreign financial firms can play remains to be seen.”
The relaxation of ownership rules follow a period in which most overseas lenders lost interest in direct stakes in their Chinese counterparts. After sales by Citigroup Inc, Goldman Sachs Group Inc and others, HSBC Holdings Plc is the only international bank with a major holding - a 19 per cent stake in Bank of Communications Co. HSBC has been building its business on the mainland as part of a ‘pivot to Asia’ under outgoing chief executive officer Stuart Gulliver.
Overseas companies will probably focus on increasing their presence in China’s insurance, securities and fund-management industries, which have ‘significant room for development’, said Oliver Rui, professor of finance at the China Europe International Business School in Shanghai. The lending business, which is dominated by government-run behemoths like Industrial & Commercial Bank of China Ltd, will attract less interest because it’s a ‘saturated’ industry and foreigners lack a competitive edge, he said.
Regulators are still drafting detailed rules, which will be released soon, China’s Vice Fi- nance Minister Zhu Guangyao said at the briefing in Beijing.
According to the new rules; foreign firms will be allowed to own stakes of up to 51 per cent in securities ventures. China will scrap foreign ownership limits for securities companies three years after the new rules are effective. The country will also lift the foreign ownership cap to 51 per cent for life insurance companies after three years and remove the limit after five years. Limits on ownership of fund management companies will be raised to 51 per cent and then completely removed in three years. Banks and so-called assetmanagement companies will also have their ownership limits scrapped.