China is sharing a slice of the cake through financial opening, but uncertainties remain
Against the background of increased external pressure, China made a number of announcements to open its economy further, and the largest part of which lies in financials. The latest announcement was made by Chinese President Xi Jinping at the Boao Forum, followed by more details from Yi Gang, the governor of the PBoC. However, the statements did not sound very different from those made during US President Donald Trump’s visit to China in November 2017. The question, thus, is how much of a financial opening should be really expected. In this report, we look at the current foreign share in China’s financial market and review the recent moves on the financial opening.
The current foreign participation remains low and virtually all in the form of joint ventures except for banks, which have standalone presences but with a decreasing share of total assets to merely 1.3% in 2017. For foreign joint ventures, the market share for securities has shrunk to only 3.9% last year. Life insurance is the only sector where the foreign market share has increased (7.2% in 2017). And the market share of funds under foreign joint ventures stayed high at 40% in 2016, but overseas investors do not usually have large ownership.
The announcements for further opening include a timeline for eliminating foreign shareholder restrictions on banks and asset management companies. Life insurance will be fast-tracked and the foreign shareholder limit will be raised to 51% by June 2018, instead of the original announcements in which the cap would be lifted after three years. Finally, the caps on foreign ownership in securities, funds and future companies will be increased to 51% by June 2018 too, without further restrictions three years after.
China’s additional push in financial opening should not be understood as a response to external pressure only. The key is China has a strong self-interest itself to open as the cleaning up of banks’ problem loans continues through securitization. Expertise in securitization is relevant in the evolution of China’s financial system. In other words, China is sharing a slide of the cake through financial opening at a time where China can probably benefit from such opening. External pressure has helped but might not be the main reason behind such opening. The ultimate question is whether foreign investors will be willing to take the opportunity this time around as many were disenchanted with their investments in the past.
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