For many years, China’s major financial markets have been largely closed to foreign financial institutions (FIs), but this appears to be changing as global relations change and the growing middle class The demands further strengthen its globalization agenda. Since the authorities are taking real steps to open up the country’s financial sector to attract foreign investment and expand the financial system, the inland areas should be given a quick start, but strategically, if they I want to take advantage of opportunities to participate.
With a third of global economic growth and proud of the world’s highest GDP (purchased under Power Parity Terms 1), China is not a market that even foreign FIs can ignore. Can afford Now, greater access to the country’s burgeoning financial sector offers these institutions significant and broader possibilities, from basic retail services to wealth management, private banking and the retirement business.
Given such impressive statistics, just capturing a fraction of a digit is enough to generate an absolute return on a large scale. Foreign FIs understandably want a piece of China’s financial services market.
Until recently, however, options to participate in China’s financial markets were limited due to regulatory constraints and a complex operating environment. Although foreign banks in China have increased their total assets (Figure 1), the pace of expansion has been slow. These institutions account for less than 2% of total assets in the Chinese banking system, compared to about 10% in OECD countries. Furthermore, as its market share declines, so does its net profit disproportionately 0.7%.
Similarly, foreign insurers receive only 2% of all premium income in China (compared to 20% in OECD countries). Capital, meanwhile, limits limited foreign FIs to a mere 2 2 billion share of the bond market on China’s 3 13.33 billion coast in 2018.
Although efforts to reform China’s financial markets have been slow so far, there are clear signs that the liberalization agenda is gaining momentum. President XI’s commitment to expeditious implementation of the country’s “Opening Up Initiatives” has prompted the Financial Stability and Development Committee to ease restrictions on foreign entities and encourage their participation. Especially when China’s economic growth process begins. The Chinese government seeks to increase international connectivity in order to innovate, increase business and consumer choices, increase capital allocations and potentially reduce military risks.
The strongest sign of a change in China’s genuine willingness is the recent alliance of its banking and insurance regulators to form the China Banking and Insurance Regulatory Commission (CBIIRC) in 2018. Strong coordination with the Central Bank of China.
Since then, the CBIRC and the China Securities Regulatory Commission (CSRC) have implemented significant reforms to standardize market entry rules and remove ambiguities around foreign FIs entry policies. These include:
Increase foreign ownership limits to strategically increase ownership of foreign FIs and influence key decisions in domestic subsidiaries. The standardization of entry requirements highlights a significant shift towards greater equity in the treatment of foreign and domestic banks.
The removal of the minimum total assets to establish a Chinese entity means that the size of the asset size will no longer be a barrier to small, agile inbound domestic exploration of new possibilities. This change also benefits the Chinese market by introducing diversity and competition to improve the depth and quality of local financial services.
Allow foreign banks to apply for RMB business license immediately instead of waiting a year under the previous rules. Administrative procedures have also been simplified to encourage foreign investment in sub-sectors such as trust business, financial leasing and consumer finance.
Amend existing rules to make it easier to go beyond business lines. For example, the removal of repatriation of assets by foreign FIs shows that regulators are not only increasing the ease of entry into the market but also providing viable options to exit them.