China pledged in late 2017 to allow overseas financial firms greater access to its economy, the world’s second-largest. Then came the trade war with the U.S., raising concerns that Chinese President Xi Jinping could retaliate by going back on his vow. The country’s top financial regulators say the opening will continue. The take-up by foreign companies is gathering pace but concerns linger.

1. How far has China gone?

China’s regulator in April 2018 began allowing overseas firms to apply for majority stakes in securities and mutual-fund management ventures and promised to permit full control in three years. Draft rules to allow foreign companies to hold controlling stakes in insurance firms followed quickly, and foreign-ownership caps on banks and bad-debt managers -- 20 percent for a single institution and 25 percent for a group -- were lifted a few months later. In May, China opened the door for full-blown local bank takeovers by lifting single-shareholder limits and scrapped some asset requirements for foreign companies to operate onshore.

2. What’s still to come?

China has promised that full foreign ownership of securities firms, mutual fund managers and life insurers will be permitted in a couple of years, but there’s no framework for that to take effect. Meanwhile, key areas of finance such as bond underwriting are mainly reserved for domestic companies. And there are plenty of hidden barriers to entry, including the challenge of cracking a market dominated by government-controlled rivals that have longstanding relationships with local firms. In sectors including banking, insurance and brokerage, local companies have a market share of more than 90 percent. The lengthy and often opaque application process also can deter foreign investors. Visa Inc. and Mastercard Inc., for example, have been waiting for years to gain entry after Beijing opened the bank-card clearing sector in 2015.

3. What’s the lure?

Access to China’s $44 trillion financial sector. Even a sliver can be lucrative. Bloomberg Economics estimates that -- barring a major economic slowdown or change of course -- foreign banks and securities companies could be raking in profits of more than $32 billion a year in China by 2030.

4. Which firms are interested?

UBS Group, JPMorgan Chase and Nomura Holdings have all won approval from regulators for majority control of their local securities joint ventures, and DBS Group Holdings Ltd. has an application pending. Credit Suisse has announced plans to take a majority stake in its onshore joint venture. German insurer Allianz SE got the green light in November to set up the first wholly foreign-owned insurance holding company in China, while Standard Life Aberdeen Plc. will provide pension insurance through its local joint venture. American Express Co. was the first foreigner to win approval to build a bank-card network in China, partnering with LianLian Group. Mastercard has applied for a joint-venture license with Beijing-based NetsUnion Clearing Corp. S&P Global Ratings was approved to do business on the mainland through a local unit in January, while Moody’s Corp. is said to be seeking control of China’s largest credit-ratings firm, Chengxin International Credit Ratings Co.

5. What’s in it for China?

The benefits may be two-fold. U.S. President Donald Trump accuses China of being a one-sided beneficiary of global commerce, so opening up makes the game seem fairer. Chinese leaders have long said opening is necessary to improve the quality and sophistication of the domestic industry, make allocation of capital more efficient and attract foreign investment. Foreign players also can help improve competitiveness in the sector without challenging the dominance of state-backed firms. Yet China is setting its own pace. Central bank governor Yi Gang has described the moves as “prudent, cautious, gradualist.”

To contact Bloomberg News staff for this story: Lucille Liu in Beijing at xliu621@bloomberg.net;Jeanette Rodrigues in Mumbai at jrodrigues26@bloomberg.net

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Grant Clark, Paul Geitner

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