China Sets Timetable to End Foreign Financial Ownership Caps
After decades of waiting, foreign firms have a clear road map for full ownership of financial services companies in China.
(Bloomberg) --
After decades of waiting, foreign firms have a clear road map for full ownership of financial services companies in China.
Overseas institutions can apply for total control of onshore ventures starting in 2020, the China Securities Regulatory Commission said Friday. The first round of applications for futures firms can begin on Jan. 1, while fund management businesses can apply from April 1 and the securities industry will be able to file for 100% stakes on Dec. 1 next year, the CSRC said at a media briefing. The agency didn’t provide further details.
The details come after China brought forward the removal of ownership cap limits for some financial services firms by one year. Regulators lifted restrictions on full foreign ownership of local banks in 2018. China has been opening its financial sector at an unprecedented pace, luring global banking behemoths such as JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley to compete for an estimated $9 billion in annual profits.
China is seeking to make it more attractive and convenient for foreigners to buy its stocks and bonds, and having foreign-owned financial services firms is one way to encourage that. Over the coming years, the likely emergence of a persistent current-account deficit will mean the nation needs foreign capital to balance its payments.
“This is a major step forward, which foreign investors have been looking forward to for nearly 20 years,” said Ren Zhiyi, a Shanghai-based partner at law firm Fangda Partners who has worked on joint ventures since 2003. “Securities have long been the most protected sector” of China’s financial industry, he said.
Since announcing its plan to open China’s more than $40 trillion financial system to overseas companies in November 2017, the government has been steadily changing its rules even as the trade war with the U.S. escalated.
Last year authorities began allowing offshore firms to take majority stakes in the sector, though there have only been a few approvals and all of them were given to securities ventures. Despite also improving access to Chinese capital markets, foreign participation is still just a fraction of overall business.
“Removing ownership caps will help prompt a higher participation of foreign financial firms in China, lure more long-term foreign capital and help with currency internationalization,” said Mark Huang, a Hong Kong-based analyst at Bright Smart Securities.“The trade war has also pressured China to create a better business environment to boost their attractiveness to foreign firms.”
The CSRC announcement came hours after U.S. President Donald Trump said the first day of high-level trade negotiations between America and China had gone “very well” and that he plans to meet with the top Chinese negotiator Friday. The talks between Chinese Vice Premier Liu He, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are expected to resume Friday, Trump said. They’re the first senior-level in-person talks since late July.
Full Force
Even amid the tensions, Wall Street firms have pushed ahead with building a greater presence in the world’s second biggest economy.
Mark Leung, JPMorgan’s chief executive officer for China, said in a Bloomberg Television interview on Thursday that the firm is “going full force in.”
“Our ambition is to ensure we have full ownership,” he said. “That’s the only way we as a firm believe we can really deliver a differentiating client experience through bringing our global scale and product expertise on the ground.”
The threat of financial decoupling looms, however, with the Trump administration looking at potential restrictions on U.S. investments in Chinese companies and financial markets -- which would open a new front in the U.S.-China trade war.
But Beijing policy makers have pushed ahead with the promise made in late 2017 to open its financial system to the world. In late September, senior Wall Street figures including Goldman Sachs Chief Operating Officer John Waldron and Morgan Stanley’s global head of international business, Franck Petitgas, attended a meeting in the Chinese capital with top national regulators.
Since China permitted majority control of financial services firms last year, UBS Group AG, Nomura Holdings Inc. and JPMorgan gained control of local securities joint ventures. Goldman Sachs, Morgan Stanley and DBS Group Holdings Ltd. have applied to follow their rivals.
“China is following through on its promise of financial opening,” said Ding Meng, a senior strategist at Bank of China Ltd.’s Macau branch. “The timetable was moved earlier than expected, which showcases their determination.”
--With assistance from Zheng Li.
To contact Bloomberg News staff for this story: Lucille Liu in Beijing at xliu621@bloomberg.net;Evelyn Yu in Shanghai at yyu263@bloomberg.net;Zhang Dingmin in Beijing at dzhang14@bloomberg.net
To contact the editors responsible for this story: Candice Zachariahs at czachariahs2@bloomberg.net, Sam Mamudi, Daniel Taub
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With assistance from Bloomberg