In­dus­try in­sid­ers as well as an­a­lysts feel China’s reg­u­la­tor will fur­ther open up the fi­nan­cial sec­tor

China Daily (Hong Kong) - - BUSINESS - By LI XIANG in Bei­jing and LUO WEITENG in Hong Kong

China has loos­ened up mar­ket ac­cess for for­eign banks that want to in­vest in do­mes­tic lenders.

In­dus­try in­sid­ers ex­pect pol­i­cy­mak­ers will con­tinue to open up the sec­tor, af­ter the coun­try’s top bank­ing reg­u­la­tor is­sued a state­ment last week clar­i­fy­ing the rules on over­seas bank in­vest­ment.

The China Bank­ing Regulatory Com­mis­sion said “wholly-owned for­eign lenders and Chi­nese and for­eign joint ven­tures will be sub­ject to the same reg­u­la­tions as over­seas fi­nan­cial in­sti­tu­tions” when it comes to in­vest­ing in Chi­nese banks.

“Over­all, for­eign lenders may not nec­es­sar­ily act on the new pol­icy in the short run, but its long-term im­pact can never be un­der­es­ti­mated,” said Field­ing Chen Shiyuan, Asia econ­o­mist at Bloomberg In­tel­li­gence in Hong Kong.

“What mat­ters is the new reg­u­la­tion sends a strong mes­sage that Chi­nese pol­i­cy­mak­ers will progress with open­ing up (the sec­tor),” Chen added. “For for­eign banks bet­ting big on the long-term op­por­tu­ni­ties in Chi­nese main­land, they will get a head start.”

Ac­cord­ing to the reg­u­la­tor’s clar­i­fi­ca­tion, for­eign banks in China will be able to pur­chase a stake in do­mes­tic lenders through their lo­cally in­cor­po­rated sub­sidiaries. Pre­vi­ously, in­vest­ment in do­mes­tic banks could only be car­ried out by par­ent com­pa­nies.

Still, the 20 per­cent max­i­mum stake cap by a for­eign bank re­mains un­changed.

She Min­hua, a bank­ing an­a­lyst at Zhong De Se­cu­ri­ties Co, felt the new rule could mean that the reg­u­la­tor in­tends to en­cour­age more for­eign banks to es­tab­lish sub­sidiaries in China.

“One in­ten­tion could be push­ing the lo­cal­iza­tion of for­eign banks,” he said. “By grant­ing them greater rights, the reg­u­la­tor hopes that more in­vest­ment by for­eign lenders will help drive eco­nomic growth.”

In­vest­ment through bank­ing sub­sidiaries in­stead of par­ent com­pa­nies will also make it eas­ier for the reg­u­la­tor to mon­i­tor and man­age cap­i­tal flows, She stressed.

An­a­lysts be­lieve that smaller Chi­nese city banks and ru­ral lenders will appeal to ma­jor for­eign play­ers look­ing to in­vest in the sec­tor, such as HSBC and Stan­dard Char­tered.

They al­ready have a wide net­work of busi­nesses here and could take ad­van­tage of this pol­icy clar­i­fi­ca­tion.

Zhang Xiaolei, pres­i­dent of Stan­dard Char­tered Bank in China, ad­mit­ted the moves to open up the fi­nan­cial in­dus­try were “very en­cour­ag­ing” and said the bank will be do­ing spe­cific busi­ness plan­ning to take ad­van­tage of the new poli­cies.

While the gov­ern­ment has pledged to lib­er­al­ize the sec­tor, it re­mains highly re­strict- ed for for­eign banks. They ac­count for about 2 per­cent of the to­tal as­sets of the in­dus­try.

By the end of 2015, there were 40 lo­cally in­cor­po­rated for­eign lenders and one jointven­ture, the Sino-Ger­man Baus­parkasse Co Ltd, ac­cord­ing to the an­nual re­port of the China Bank­ing Regulatory Com­mis­sion.

Dominic Wu Sze-yin, chair­man of Asia Fi­nan­cial Risk Think Tank in Hong Kong, said for­eign banks tend to take small stakes in Chi­nese lenders be­cause of pres­sure from home reg­u­la­tors to re­duce cap­i­tal ex­pen­di­ture and debt ra­tios.

“Look­ing ahead, for­eign banks will pay more at­ten­tion to busi­ness col­lab­o­ra­tion with their Chi­nese coun­ter­parts,” Wu said.

“Tra­di­tional busi­ness ar­eas like re­tail and com­mer­cial bank­ing may spell few op­por­tu­ni­ties, while pri­vate bank­ing and as­set man­age­ment stand as the twin pil­lars of ar­eas that gen­er­ate high re­turns and woo for­eign banks to in­vest in,” he said.

What mat­ters is the new reg­u­la­tion sends a strong mes­sage that Chi­nese pol­i­cy­mak­ers will progress with open­ing up (the sec­tor).”

Field­ing Chen Shiyuan, Asia econ­o­mist at Bloomberg In­tel­li­gence in Hong Kong

Zhuang Qiange con­trib­uted to this story.

Con­tact the writ­ers at lix­i­ang@chi­


Ad­ver­tise­ments for do­mes­tic and for­eign banks in Bei­jing Fi­nan­cial Street.

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