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China on Friday unveiled plans to lift and gradually phase out caps on equity holdings by foreign investors in the country’s financial system. Future measures will include granting permission to amass majority stakes in securities joint ventures, as part of a wider opening up of the world’s second-largest economy.
Beijing will allow overseas investors to take a stake of up to 51 percent in their onshore securities, futures or fund management joint ventures, said China's Vice Finance Minister Zhu Guangyao, at a press briefing in Beijing. Zhu added that the 51 percent restriction will be removed three years after the plan is implemented.
Currently, foreign investors’ operations are constrained by restrictions on their investment in China’s financial sector, with Beijing limiting overseas financial institutions to a 20 percent equity stake in Chinese commercial banks, a 49 percent stake in securities firms or asset management companies, and a 50 percent stake in life insurance companies.
China will also remove caps placed on equity stakes owned by foreign institutions in Chinese banks or asset management firms, Zhu noted. The current maximum equity stake is 20 percent for a single foreign investor, and 25 percent for all foreign investors.
Meanwhile, the 50 percent stake cap in life insurance companies will be lifted to 51 percent in three years, and completely phased out in five years.
Despite the current ownership curbs, most global banks have waited patiently for the sector to open up more - given its potential.
Brokerage revenues in China reached a high of 41 billion US dollars in 2015, according to Quinlan & Associates, a finance consultancy firm.
This move would allow global banks such as JP Morgan, Goldman Sachs, Credit Suisse and UBS to buy more shares from their partners in existing ventures or enter into new partnerships. Management control would allow them to offer more services through their joint ventures and potentially leverage their global networks to win a greater China market share.
The announcement’s timing, which came on the day US President Donald Trump concluded his visit to China, may help him return to Washington claiming credit for further opening up and boosting warmer ties between the two world powers. However, the decision was almost certainly the result of lengthy behind-the-scenes planning by Chinese authorities, Iris Pang, a China economist at ING Group in Hong Kong, told Bloomberg.
"I believe China has planned for this for a very long time, and now is the right time to announce it because Trump is visiting," Pang said.
Overseas firms will "still calculate the risk-reward margin carefully," said Raymond Yeung, chief Greater China economist at Australia & New Zealand Banking Group in Hong Kong. "That said, the scale of the market is something they won’t ignore."
So far, only HSBC is allowed to set up majority-owned securities joint ventures in China, taking advantage of rules that favor Hong Kong-established banks over their foreign peers.
In January, Morgan Stanley became the first foreign bank to receive Chinese securities regulator’s approval to boost its stake in its securities venture to 49 percent, up from a third.
(CGTN)
