China makes historic move to open market for financial firms

HONG KONG: China took a major step toward the long-awaited 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 will give global financial companies unprecedented access to the world’s second-largest economy.

The announcement 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.

It also coincided with Donald Trump’s visit to Beijing, though the US president didn’t know it was coming.

Foreign financial firms applauded the move, with JPMorgan Chase & Co and Morgan Stanley saying in statements that they’re committed to China. UBS Group AG said it would 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% 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 would probably focus on increasing their presence in China’s insurance, securities and fund-management industries, which had “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, would attract less interest because it’s a “saturated” industry and foreigners lack a competitive edge, he said.

Regulators are still drafting detailed rules, which would be released soon, China’s Vice-Finance Minister Zhu Guangyao said at the briefing in Beijing.

Chinese markets took the news in their stride, with the nation’s benchmark Shanghai Composite Index fluctuating in a narrow range after the announcement. Shares of Chinese financial companies were mixed in Hong Kong.