China has been rapidly opening up its financial sector as of late, green lighting numerous new market activities in a matter of weeks. finews.asia reviews the accelerated entrance.
On July 21, Chinese Premier Li Keqiang reiterated China’s plans to open up its financial market during a State Council executive meeting.
«We must fully deliver on the commitments we have made by advancing the opening-up in the banking and insurance sectors in an orderly way,» he said, highlighting the need to leverage domestic and international markets for China to remain as a popular investment destination. «We need to take a holistic approach in handling the relationship between financial openness and financial security, to better safeguard China's economic and financial security.»
Since then, China has notably accelerated its efforts to welcome foreign entrants.
Shanghai AM Hub
One week after Li's statement, Chinese authorities announced their ambitions during a conference for Shanghai to become a global asset management hub by 2025.
In attendance at the conference were fund giants like BlackRock, Fidelity International and Franklin Templeton.
Several firms – including Charles Schwab and T. Rowe Price – inked agreements on the same day to establish footholds in Shanghai’s financial district Lujiazui.
Pipeline Populated
Continued opening of China’s financial sector is to be expected with more global giants reportedly already in the pipeline.
Goldman Sachs and UBS are seeking regulatory approval to take full ownership of their securities unit while Sumitomo Mitsui Financial Group applied in late July to establish a fully-owned brokerage.
More recently, China’s regulator announced that it had begun reviewing Standard Chartered’s application to establish its own wholly-owned securities firm.
Pent-Up Demand
Foreign firms are increasingly nearing the realization of their China ambitions after many years of struggling with inaccessibility and complex regulations.
«Foreign banks and insurers still face a number of difficulties in planning and resource management due to complex, and often unnecessary, regulations,» said a recent survey by the European Union Chamber of Commerce in China, highlighting foreigners’ minuscule market share. «This has led to the common perception that the opening-up of China’s financial sector is ‘too little, too late'».
Increased exposure to the mainland could also offset short-term revenue loss elsewhere such as shrinking investment banking fees caused by tightening against Chinese firms listing abroad or the impact from U.S. sanctions targeting Chinese capital markets.
Tough Timing
But despite the indisputable allure of a $45 trillion market, there are emerging challenges in the backdrop for foreign entrants, never mind existing headwinds from geopolitics and the recent outbreak of Delta variant cases.
Chinese equity markets have been volatile – the CSI 300 index saw a peak-to-trough decline of over 18 percent this year – in the midst of ongoing crackdowns across technology, education and other sectors.
The country is also facing challenges from natural disasters such as floods in Henan which has financial pundits worried, including one wealth manager who said it «may well trigger the largest insurance payment in a single natural catastrophe in China».
Recent approvals for entry by foreign financial firms are as follows:
- On July 30, Citi announced that it was approved to operate onshore fund custody services
- Also on July 30, Allianz announced it was approved to become China’s first wholly foreign-owned insurance asset management company
- On August 4, BNP Paribas announced that it was granted a license to provide custody services under China’s Qualified Foreign Investor (QFI) scheme
- Last Friday, J.P. Morgan announced that it was approved to become the first foreign firm in China to obtain full ownership of its securities joint venture
- Also on Friday, Pictet Asset Management said its wholly foreign-owned enterprise in Shanghai successfully registered as a qualified domestic limited partner (QDLP) manager
- On Monday this week, Fidelity International announced that it received approval to become the second foreign asset manager to establish a wholly foreign-owned mutual fund company