Finance Industry Opens Further

Following last year’s easing of controls on foreign-owned shares in financial institutions, Chinese authorities have forged ahead with the opening up of the country’s finance industry with measures to expand the scope of business and market access for foreign banks.

On February 24, the China Banking Regulatory Commission (CBRC) published policies allowing overseas lenders to invest in domestic banks, establish new branches and follow the same standards as domestic players.

The move reflects China’s commitment to opening up, said Ding Jianping of the Shanghai University of Finance and Economics.

“It means foreign-funded banks will gradually enjoy ‘national treatment,’ and both domestic and foreign banks will be able to compete on a level playing field,” Ding said.

Since its accession to the World Trade Organization in 2001, China has gradually relaxed restrictions in several areas, including the underwriting of treasury bonds, financial advisory services, and most custo- dian business.

HSBC Qianhai Securities, the first brokerage to be majority-owned by a foreign bank, opened for business in December 2017, with licenses to conduct research and brokerage services, underwrite and sponsor stock and debt issuance, and advise on mergers and acquisitions.

“The joint venture has benefited from steady, sustained efforts from the government to push forward economic restructuring, deepen financial reforms and build multi-level, transparent and open capital markets,” said Anthony Leung, Vice President of HSBC China.

The CBRC also reduced the red tape for foreign banks, scrapping approval procedures for four items including overseas wealth management products and portfolio investment funds. Banks are now only required to report their services to authorities rather than obtaining approval in advance.

According to analysts, the measures will not only help banks to increase their presence in China, but also act as a boon to many other foreign businesses.

“Foreign bank clients engaged in trading and investment in China are expected to receive better financial services as control loosens, which will further promote economic ties between China and the rest of the world,” said Ding.

With fewer restrictions, foreign banks have started playing a bigger role in China’s financial markets.

In the financial hub Shanghai, the total assets of foreign banks had reached 1.56 trillion yuan ($250 billion) by the end of 2017, an increase of 13 percent year on year. It is the fastest such rate in nearly five years and accounts for around 10 percent of total banking assets in the city.

More favorable policies are in the pipeline. Vice Finance Minister Zhu Guangyao said last November that the country will remove restrictions on investment in Chinese banks, financial asset management companies and life insurers in the next three to five years, as well as in joint ventures in securities, funds or futures.

The CBRC said it will continue to support foreign banks entering the Chinese market, broadening the scope of their business and building a fair and transparent environment.

Those measures will give foreign capital a greater say in business operations and motivate them to channel more resources into the country, said Fu Yang, an analyst at AVIC Securities.

Christine Lam, Citigroup’s Chief Executive for China, expects the clarity of the country’s roadmap and timetable for opening up to help foreign-funded financial institutions make preparations to integrate into the market, including possible cooperation with domestic firms and licensing.

Foreign players will see wider market access and more opportunities to increase their presence as China continues to liberalize the capital account and relieve tax burdens for businesses, Lam said.

Analysts expect the changes to inject new vitality into the country’s financial sector and speed up Chinese banks’ global push, even though the opportunities they provide will generate more competition.