China Introduces More Measures to Open Up Financial Sector
August 05, 2019 | BY
Marilyn RomeroChina has unveiled 11 measures to open up the country's financial sector and scrap foreign shareholding caps in most financial sectors in a bid to bolster and stabilize growth.
Until recently, China’s financial sector was considered a sensitive area and foreign investment in the segment was heavily restricted. In the past few years, however, the sector has witnessed a steady stream of initiatives to open it up to foreign players. The latest round of measures, “Relevant Measures for Further Opening Up the Financial Sector”, were announced by the Office of Financial Stability and Development Committee of China’s State Council on July 20.
Eleven new measures were unveiled after a high-level meeting chaired by Vice Premier Liu He, and policymakers discussed the steps required to counter the rising risks and challenges facing the $44 trillion finance industry. Four measures target the insurance sector; three cover the bond sector; two are linked to wealth management; and two are connected with the securities business.
Under the new measures, the deadline for eliminating the current caps on foreign investment in securities, futures, fund management and life insurance businesses has been brought forward to 2020, a year earlier than was previously planned. In the insurance sector, the restriction that domestic insurers must hold in aggregate not less than a 75% equity interest in an insurance asset management company will be removed. Furthermore, a foreign investor seeking to invest in an insurance company in China will no longer need to demonstrate a 30-year track record in the insurance business.
In the asset management sector, the changes will now allow foreign financial institutions to invest in pension fund management companies in China – either by establishing new operations or by acquisition. Foreign asset managers are also allowed to partner with the subsidiaries of Chinese banks or insurers to set up asset management companies that are controlled by a foreign party or parties. Foreign financial institutions are also encouraged to participate in the establishment of or investment in the asset management subsidiaries of commercial banks.
Restrictions regarding rating agencies and underwriting licences in the bond market have been abolished, and policy support will be available for the establishment of wholly foreign-owned money brokerage companies (either by setting up a new operation or acquisition of an existing entity). Foreign-invested financial institutions are now allowed to obtain Type-A underwriting licences in the interbank bond market.
The new reforms are the latest in a series of measures introduced to open up markets, and honor the commitment made by Premier Li Keqiang in July when he stated that China will allow majority foreign ownership of securities and life insurance firms by 2020. Since the start of the year, China has introduced a new Nasdaq-styled tech company stock market. A London-Shanghai Stock Connect scheme has also been introduced with a similar bond market scheme mooted.
Despite media reports claiming the rapid liberalization moves as responses to the growing pressure from China’s escalating trade war with the U.S., Beijing maintains that the relaxation of financial market regulations has been an extension of its opening-up policy.
“Further opening-up will bring about more efficient resource allocation and dividends. While the industrial chains and other value chains that can boost economic development have formed and operated effectively, no country can do everything in isolation and without cooperation,” Zhao Xijun, deputy director of the Financial and Securities Research Institute at Renmin University of China, wrote on state-run Global Times newspaper.
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