China’s Finance World Opens Up to Foreigners, Sort Of
Even
as the trade war was crimping the flow of goods between the U.S. and
China, the Chinese government was opening doors in another arena,
inviting in more foreign banks, insurance providers and other financial
services companies. China has also been making it easier for foreigners
to buy its stocks and bonds — something many fund managers are required
to do now that major index compilers are including Chinese assets in
their gauges — to the growing dismay of some U.S. politicians. The
take-up is gathering pace but the going has been tough, even before the
economic disruption and increased political tension caused by the
coronavirus pandemic.To get more International finance news china, you can visit shine news official website.
1. What’s the change?
In
2020 China began allowing full foreign ownership of more financial
services companies. Ownership caps for securities and mutual fund firms,
life insurers and futures-trading houses came off in stages during the
year. Regulators in 2019 had cleared the way for full takeovers of local
banks by foreigners, a year after easing caps in that category. Foreign
companies now also can be lead underwriters for all types of bonds and
control wealth-management firms. The Shanghai-London Stock Connect
officially kicked off in 2019, allowing companies listed on one bourse
to trade shares on the other. (As 2021 began, however, only four
companies had taken advantage of it.) The Shanghai and Shenzhen
exchanges were linked earlier with the one in Hong Kong, a
semi-autonomous part of China.
China’s more than $50 trillion
financial services industry. Even a sliver can be lucrative. Not long
ago Bloomberg Intelligence estimated that foreign banks and securities
firms could be raking in profits of more than $9 billion a year in China
by 2030. The pandemic and an increasingly fraught U.S.-China
relationship have clouded that forecast. But even so, in late September
BI forecast that foreign commercial bank assets in China could rise 9.3%
a year through 2025 to 1.2% of the total market. That’d be up from 1.1%
in 2020 -- illustrating how huge the market is. Similarly, the analysts
saw foreign banks on track to claim 1.5% of China banking profits in
2025, up from 1.1% in 2019, helped by the looser rules and greater
access. If relations sour further, though, those shares could slip as
some players retreat and others put expansion plans on hold.
Much
is political. In Washington there is strong bipartisan support for a
tougher line on China on national security grounds. In November,
then-President Donald Trump barred American investments in companies
identified by the U.S. Defense Department as having links to China’s
military, and lawmakers were laying the groundwork for rules that could
eventually force some Chinese companies to delist in the U.S. over
auditing issues. Attitudes could harden further as the global economy
struggles to recover from the pandemic-induced slump, although China’s
President Xi Jinping said in November that opening up was a fundamental
policy that won’t change. There are also plenty of hidden barriers,
including the challenge of cracking a market dominated by
government-controlled rivals that have longstanding relationships with
clients. The lengthy and often opaque application process also can be a
deterrence. Visa, for example, has been waiting since 2015. In a
surprise about-face in March, Vanguard Group Inc. dropped its bid to set
up a mutual fund company in China and said it would focus on a joint
venture robo-adviser platform with Ant Group Co. instead.
They’re
being slowly added to widely followed global benchmarks, including
stock indexes by MSCI Inc. and FTSE Russell and, for bonds, the
Bloomberg Barclays Global Aggregate Index, JPMorgan’s GBI-EM indexes and
– starting in October 2021 – FTSE Russell’s flagship World Government
Bond Index. That is expected to draw hundreds of billions of dollars
more in purchases from funds that track those gauges, since the fund
managers have to buy the underlying securities. But there also have been
moves in the U.S. to force American investors to curb their China
exposure.
Bumpy. Index providers including MSCI, FTSE Russell and
S&P Dow Jones Indices have moved to delete companies affected by
Trump’s order regarding military ties. Chinese sovereign bonds won
inclusion into FTSE Russell’s benchmark bond index in September, after
an initial rejection. In 2019 MSCI said it wouldn’t add any more
yuan-denominated shares until China fixed long-standing concerns over
market access. And not every opening is met with enthusiasm: Foreign
investors had bought only a third of the total allotment at the time
regulators scrapped the quota system for Chinese stocks and bonds in
September. Market turbulence in recent years, including major stock
sell-offs, has dampened interest. Some investors also worry about being
unable to repatriate their money due to China’s capital controls. (The
government has long kept a tight grip on money flowing in and out so as
to preserve the value of its currency, the yuan.)
The benefits
may be twofold: U.S. politicians accuse China of being a one-sided
beneficiary of global commerce, so opening up makes the trade seem more
balanced. And Chinese leaders have long described the moves as a useful
way to improve the competitiveness of the domestic financial firms --
without threatening their dominance -- as well as to allocate capital
more efficiently and attract foreign investment. Central bank governor
Yi Gang has described the moves as “prudent, cautious, gradualist.”
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