China to remove foreign ownership limits on banks
New rules will give global financial firms access to the economy
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, unveiled at a government briefing yesterday, 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.
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. Those who enter China will face plenty of risks – including competition from state-owned players and the threat of rising defaults – but optimists say the opening will create new opportunities for foreign firms and make the country’s financial system more efficient.
“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.
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 Finance Minister Zhu Guangyao said at the briefing in Beijing. Here’s what we know so far:
Foreign firms will be allowed to own stakes of up to 51% in securities ventures; China will scrap foreign ownership limits for securities companies three years after the new rules are effective; The country will lift the foreign ownership cap to 51% 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%, then completely removed in three years; Banks and so-called asset-management companies will have their ownership limits scrapped
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 will continue to push for an increased stake in its Chinese joint venture.
The relaxed ownership rules follow a period in which most overseas lenders have 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.