China is allowing total foreign ownership of life insurance companies, futures and mutual funds this year, in stages. Foreign ownership limits for securities firms will be removed on April 1 as part of the trade agreement signed with the United States in January. China also promised to take no more than 90 days to decide on requests from electronic payment service providers, including fully foreign-owned operations. Regulators cleared the way for total acquisition of local banks by foreigners in 2019, a year after it eased property limits. Foreign companies can now also be main subscribers for all types of bonds, and can control wealth management companies, pension fund managers and brokerage brokers. The Shanghai-London Stock Connect officially began in June, allowing publicly traded companies to exchange shares for the other. (Six months later, however, only one company had taken advantage of it.) An earlier program linked Hong Kong with exchanges from Shanghai and Shenzhen.
• UBS, JPMorgan Chase and Nomura have established majority-owned securities companies, while Goldman Sachs, Morgan Stanley and Credit Suisse have pending applications. Citigroup is planning an absolute property securities business.
• Amundi obtained approval to control a wealth management company in Shanghai, the first foreign company to do so. BlackRock and Temasek are in talks with a Chinese bank to start another.
• Vanguard, BlackRock, Fidelity International, Van Eck Associates, Neuberger Berman and Schroders have told regulators that they intend to apply for a license to start mutual fund companies once the application window opens in April.
• Allianz SE obtained the green light in 2018 to establish the first fully foreign property insurance company in China, while Standard Life Aberdeen Plc will provide pension insurance through its local joint venture.
• American Express Co. was the first stranger to obtain approval to build a network of bank cards in China. Mastercard Inc. has applied for a joint venture license with a Chinese partner. Visa Inc is looking for a bank card license clearing institution license. Paypal Holdings Inc. acquired a 70% stake in a local company last year.
• JPMorgan seeks full control of its futures and its joint fund management companies.
• S&P Global Ratings obtained approval to do business in the continent through a local unit in January 2019 and published its first qualification on land six months later.
China’s $ 45 billion financial services industry. Even a splinter can be lucrative. Bloomberg Intelligence estimates that, except for a major economic slowdown or a change of course, foreign banks and securities companies could be making profits of more than $ 9 billion a year in China by 2030. Guo Shuqing, the leading banking regulator of China sees a significant space For foreign investors: as of May 2019, they had only 1.6% of bank assets and 5.8% of the insurance market, he said. The percentages have fluctuated over the years. In 2007, for example, the foreign participation of Chinese bank assets was 2.3%.
The threat of financial decoupling looms with the Trump administration looking at restrictions on US investments in Chinese companies and financial markets, a possible new front in the trade war. (China stated that it would continue to open markets and encourage foreign investment.) There are also many hidden barriers, including the challenge of breaking a market dominated by government-controlled rivals that have long-standing relationships with customers. The long and often opaque application process can also be an impediment. Visa and Mastercard, for example, have been waiting since 2015.
5. What about stocks and bonds?
Slowly they are being added to widely followed global benchmarks, including the MSCI Inc. and FTSE Russell stock indices and, for bonds, the aggregate Bloomberg Barclays global index and JPMorgan’s GBI-EM indices. That is expected to attract tens of billions of dollars in initially purchases of funds that track those indicators.
Bumpy. At the end of 2019, MSCI said it would not add more yuan-denominated shares until China has solved long-standing concerns about market access. And not all openings are enthusiastically received: foreign investors had bought only one third of the total allocation at the time the regulators scrapped the quota system for Chinese stocks and bonds in September. Market turbulence in recent years, including mass sales of shares, has reduced interest. Some investors also worry about not being able to repatriate their money due to China’s capital controls. (The government has long maintained strict control over the money that enters and leaves to preserve the value of its currency, the yuan).
7. What is there for China?
The benefits can be double: the president of the United States, Donald Trump, accuses China of being a unilateral beneficiary of world trade, so opening up makes trade seem more balanced. And Chinese leaders have described the movements as a useful way to improve the competitiveness of the national industry, without questioning their dominance, as well as allocating capital more efficiently and attracting foreign investments. The governor of the central bank, Yi Gang, described the movements as “prudent, cautious, gradualist.”
–With the help of Jun Luo.
To contact the editors responsible for this story: Candice Zachariahs at [email protected], Paul Geitner, Grant Clark