Chinese banks, funds open to foreign control

Overseas lenders now account for 1.26% of the nation’s total banking assets

China took a major step toward the long-awaited opening of its financial system, saying it will remove foreign ownership limits on banks and asset-management companies while allowing overseas firms to take majority stakes in local securities ventures 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 coincides with Donald Trump’s visit to Beijing and bolsters 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.

Big strides

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 domestic 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. “How important a role foreign financial firms can play remains to be seen.”

Regulators are drafting detailed rules, which will be released soon, Vice Finance Minister Zhu Guangyao said at the briefing in Beijing. Here’s what we know so far:

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

Foreign financial companies 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.

Policymakers had hinted at an opening in recent months. Just yesterday, China’s Foreign Ministry said entry barriers to sectors such as banking, insurance, securities and funds would be “substantially” eased “in accordance to China’s own timetable and road map.”