Barriers to market access continue to be the top hurdle for financial institutions seeking to expand in China, according to a recent survey by the European Union Chamber of Commerce in China.
55 percent of financial sector respondents said they missed out on business opportunities in China as a result of market access restrictions or regulatory barriers, according to the European Chamber’s latest «Business Confidence Survey 2021».
Overall, 45 percent of total respondents across sectors cited the same challenge.
«That this figure has remained almost exactly the same over the last six years suggests that any market access or regulatory improvements that have been made have been offset by deterioration in other areas, or that improvements have not been effective in meaningfully opening the market,» the survey said.
Financial Sector Barriers
According to the survey, «the financial services sector encapsulates the problem with indirect barriers to the Chinese market» despite ongoing efforts by Beijing to open up markets to foreign players.
For example, licensing processes can be lengthy and limited to applying for one province at a time.
«Too Little, Too Late»
The survey also highlighted the dominance of domestic financial institutions as a «significant disincentive for new market entrants».
Foreign-invested insurers held a market share of 7.8 percent – compared to 60 percent at China’s largest domestic players – while foreign banks held just 1.2 percent of total assets.
«[F]oreign banks and insurers still face a number of difficulties in planning and resource management due to complex, and often unnecessary, regulations,» the survey said. «This has led to the common perception that the opening-up of China’s financial sector is ‘too little, too late’.»
Tech Costs to Force Out Smaller Banks
In addition to market access and local dominance, the survey said that legal developments with regard to data localization and transfer requirements are expected to add cost pressures and hurdles to doing business, especially for the financial sector.
«As European banks in China will never be able to build sufficient scale in an already-saturated market that has only just opened up, many of the smaller ones simply cannot justify the costs and will be forced to leave the market,» the survey said.
«This outcome would not only diminish China’s goal of building a more competitive and international financial system but would also seriously impact European companies that prefer to work with these European banks.»
More Committed Than Ever
Despite the challenges, the survey notes that European companies were more committed than ever in the Chinese market.
Just 9 percent of overall respondents were looking to shift investments in China elsewhere while 59 percent sought to expand their operations in the mainland – both record figures.
Although the survey does detail business optimism of the financial sector, European players continue to announce growth plans in China. For example, HSBC established the country’s first foreign fintech unit in January while Standard Chartered reportedly applied for a brokerage license in October last year.
