Reforms by the People’s Bank of China (PBOC), with the involvement of the China Banking Regulatory Commission, could see the nation’s financial services sector feature greater foreign access, according to a
Bloomberg News article.
A meeting was planned for 19 September 2017 to discuss proposals by the bank; to receive feedback from Chinese institutions; and to discuss a timetable for the potential opening up of the financial sector and previous lessons learnt.
The plan may “include permission for foreign institutions to control their local financial sector joint ventures” and increase the limit on foreign ownership of Chinese banks from 25%. Foreign firms may also be allowed to provide yuan-denominated bank card clearing services.
Tommy Xie, a Singapore-based economist at Oversea-Chinese Banking Corp, is quoted as saying that the PBOC’s plans indicate that the negatives of opening up the financial sector would be outweighed by positives, such as increased competition on local institutions. Compared to a decade ago, Chinese firms are in a much better position to withstand foreign competition.
Bloomberg article
Dispelling fearsThese potential changes have dispelled the fears of financial services sector insiders, according to
China Daily’s Li Xiang.
Official data referenced by Xiang points out a potential underlying reason for the relaxation of overseas investment restrictions. Foreign investment went down by 1.2% year-on-year between January and July 2017 to ¥485.4bn ($74.9bn).
These reforms follow a concerted effort by China to open up both their financial sector and capital markets. In June 2017, HSBC Holdings received first of its kind regulatory approval to set up a majority-owned joint venture: HSBC Qianhai Securities. Then, in July 2017, Bond Connect, which allows foreign investors to trade with mainland China, was launched.
"There is no perfect timing when it comes to financial liberalisation. Reforms always come with risks"This supplements progress already made by the qualified foreign institutional investor programme (QFII), which gives foreign investors wider access to the Chinese stock markets in Shanghai and Shenzhen on a selective basis, and the renminbi qualified foreign institutional investor (RQFII) programme, which allows foreign organisations to invest in mainland China’s bond and equity market.
Qu Tianshi, an economist at ANZ group who is quoted in the article, says: “The Chinese economy [is now] integrated with the global economy. China should have a more open financial sector to reflect its economic status and to adapt to the trend of globalisation.”
However, Qu warns: “There is no perfect timing when it comes to financial liberalisation. Reforms always come with risks. What Chinese policymakers need to do is to strike a balance between the two.”
China Daily article
Increased cross-border collaborationTwo foreign banks looking at these new opportunities in China are Citibank and Standard Chartered. An article on
Ecns.cn looks at both companies and how they intend to capitalise on the changes.
Christine Lam, chief executive officer of Citi China, is cited as saying that the policy reforms are encouraging because they will “support foreign banks’ further engagement, and participation in the opening and development of China’s financial [services sector]”. China is “one of Citi’s most important countries worldwide”, and Citi is optimistic that this, RQFII and “other opportunities” will help strengthen its operations.
The Belt and Road Initiative (BRI), which focuses on connectivity between Eurasian countries and China, is also seen as a growth area by major global lenders. This initiative, and the long-standing relationships that Citi has with clients and regulators because of it, puts Citi “in an excellent position to be the partner of choice”.
Standard Chartered is another financial institution that, as a result of the BRI, is investing in the Chinese market. Jerry Zhang, executive vice-chairman and chief executive officer of Standard Chartered Bank (China), said: “Foreign banks, including Standard Chartered, are greatly encouraged by the recent launch of policies by China to further open its financial markets.”
Zhang says this opening up “has a very deep meaning with rich connotations”. He expands: “We’ll take advantage of these policies, grasp the opportunities brought by China's [decision to] open up and draw on our strengths in cross-border financial services and global networks.”
Incrementally, China’s financial services sector is embracing globalisation. While this does not come without risk, as Qu pointed out, it also comes with the chance of reward. According to a report by the European Union Chamber of Commerce in China, 56% of European firms would be more likely to increase their investment in China if they had greater access to the market. And reward for China is reward for the global financial services sector.
Ecns.cn article
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