How’s China’s open­ing to the fi­nan­cial sec­tor go­ing?

Gulf Times Business - - BUSINESS - Bloomberg News

China pledged in late 2017 to al­low over­seas fi­nan­cial firms greater ac­cess to the world’s sec­ond-largest econ­omy. Then came the trade war with the US, rais­ing con­cerns that Pres­i­dent Xi Jin­ping could re­tal­i­ate by go­ing back on his vow. Xi says the open­ing is steadily widen­ing. But the take-up by for­eign com­pa­nies has been slow.

1. How far has China gone?

China’s reg­u­la­tor in April 2018 be­gan al­low­ing over­seas firms to ap­ply for ma­jor­ity stakes in se­cu­ri­ties and mu­tual-fund man­age­ment ven­tures and promised to per­mit full con­trol in three years. Draft rules to al­low for­eign com­pa­nies to hold con­trol­ling stakes in in­sur­ance firms were pub­lished in May. For­eign-own­er­ship caps on banks and bad-debt man­agers – 20% for a sin­gle in­sti­tu­tion and 25% for a group – were lifted in Au­gust.

2. What’s the lure?

Ac­cess to China’s more than $40tn fi­nan­cial sec­tor. Even a sliver can be lu­cra­tive. Bloomberg Eco­nomics es­ti­mates that – bar­ring a ma­jor eco­nomic slow­down or change of course – for­eign banks and se­cu­ri­ties com­pa­nies could be rak­ing in prof­its of more than $32bn a year in China by 2030.

3. Which firms are in­ter­ested?

UBS Group AG won ap­proval from reg­u­la­tors to gain con­trol of its lo­cal se­cu­ri­ties joint ven­ture on Novem­ber 30. Five days ear­lier, Ger­man in­surer Al­lianz SE got the green light to set up the first wholly for­eign-owned in­sur­ance hold­ing com­pany in China. No­mura and JPMor­gan have had their ap­pli­ca­tions for ma­jor­ity stakes in se­cu­ri­ties joint ven­tures ac­cepted, but are still work­ing through the lengthy ap­proval process. No known ap­pli­ca­tions have been made in the bank­ing, bad-debt man­age­ment, or mu­tual fund in­dus­tries.

4. Why so tepid?

Many com­pa­nies are tak­ing a wait-and-see ap­proach. The trade war con­tin­ues to stoke fears that mar­ket ac­cess may be re­voked. Pre­vi­ous joint ven­tures in­volv­ing mi­nor­ity stakes that didn’t work out are still fresh in many mem­o­ries, such as JPMor­gan’s exit from its deal with First Cap­i­tal Se­cu­ri­ties Co in 2016. Cit­i­group, Gold­man Sachs, Bank of Amer­ica and Deutsche Bank all sold their mi­nor­ity stakes in Chi­nese banks be­tween 2013 and 2016. Reg­u­la­tors have also set net as­set value thresh­olds for for­eign firms to be­come ma­jor­ity share­hold­ers. That could be an is­sue for Gold­man Sachs, Mor­gan Stan­ley and oth­ers that hold their ex­ist­ing stakes in Chi­nese JVs through en­ti­ties in­cor­po­rated in Asia, not the global com­pany.

5. What’s in it for China?

The ben­e­fits may be two- fold. US Pres­i­dent Don­ald Trump ac­cuses China of be­ing a one-sided ben­e­fi­ciary of global com­merce, so open­ing up makes the game seem fairer. Chi­nese lead­ers have long said open­ing is nec­es­sary to im­prove the qual­ity and so­phis­ti­ca­tion of the do­mes­tic in­dus­try, make al­lo­ca­tion of cap­i­tal more ef­fi­cient and at­tract for­eign in­vest­ment. For­eign play­ers also can help im­prove com­pet­i­tive­ness in the sec­tor with­out chal­leng­ing the dom­i­nance of state-backed firms. Yet China is set­ting its own pace. Cen­tral bank gover­nor Yi Gang has de­scribed the moves as “pru­dent, cau­tious, grad­u­al­ist.”

Newspapers in English

Newspapers from Qatar

© PressReader. All rights reserved.