China Liberalises Banking, Insurance Market

Tom Burroughes

2 May 2019

China has moved to further open up its $44 trillion financial market sector, scrapping limits on ownership in local banks and size requirement for foreign firms operating onshore.

Foreign insurance groups can create units in the country, the said yesterday, coinciding with trade talks between China and the US in Beijing.

Opening the vast market comes as the country has sought to stem outflows of capital and bolster the status of the renminbi as a global reserve currency. Other recent moves include fostering cross-border equity trading links between Hong Kong and the mainland.

Guo Shuqing, secretary of the Party Committee of the People's Bank of China and chairman of the CBRC, said the “upper limit of the shareholding ratio of a single Chinese-funded bank and a single foreign-funded bank to a Chinese-funded commercial bank shall be cancelled at the same time”.

Other measures include:
-- Scrapping the total assets requirement of $10 billion established by foreign banks to establish foreign-funded corporate banks in China and the total assets requirement of $20 billion dollars established by foreign banks to establish branches in China;
-- Ending the $1 billion total assets requirement of overseas financial institutions investing in a trust company;
-- Allowing foreign financial institutions to participate in foreign-invested insurance companies in China;
-- Cancellation of the insurance brokerage business of a foreign insurance brokerage company in China must meet the requirements of 30 years of operation and total assets of not less than 200 million US dollars;
-- Relaxing the restrictions on Chinese shareholders of Sino-foreign joint venture banks, and cancelling the requirements of the only or major shareholders of the Chinese party must be financial institutions;
-- Encourage and support overseas financial institutions to conduct various types of cooperation in equity, business and technology with banking insurance institutions controlled by private capital;
-- Allow foreign-funded banks to operate RMB business when they open business.

The announcements could enable local bank takeovers.

At present, Hong Kong/London-listed HSBC has a stake in China’s Bank of Communications. Banking groups such as Morgan Stanley, Credit Suisse and UBS operate securities joint ventures in China. For example, Credit Suisse recently agreed to boost its stake in a Chinese joint venture. The bank said it agreed with Founder Securities Co to boost its shareholding in its Credit Suisse Founder Securities Limited JV. The Swiss bank’s JV shareholding will rise from 33.3 per cent to 51 per cent by way of capital injection. The shareholding of Founder Securities in CSFS will drop to 49 per cent.

(Editor's note: It is rather ironic that a purportedly Communist country is opening up its financial sector to foreign buyers and entrants at a time when protectionism, in all its guises, is rising around the world in some ways. To an extent this also highlights how China is hungry for foreign capital - some of its recent actions to clamp down on its citizens' offshore holdings are designed to stem outflows. The measures are all of a piece with a number of other moves in recent years to open up China's markets. It may take quite a while before China can boast the kind of financial market to rival New York or London, but the direction of travel is clear enough. And wealth management firms will want to closely watch the opportunities here.)