China is allowing full foreign ownership of life insurers, futures and mutual fund companies this year -- in stages. Foreign ownership caps for securities firms will be removed April 1 as part of the trade agreement signed with the U.S. in January. China also pledged to take no longer than 90 days to decide on applications from electronic-payment service providers, including for wholly foreign-owned operations. Regulators cleared the way for full takeovers of local banks by foreigners in 2019, a year after it eased ownership caps. Foreign companies can now also be lead underwriters for all types of bonds, and can control wealth management firms, pension fund managers and inter-dealer brokers. The Shanghai-London Stock Connect officially kicked off in June, allowing companies listed on one bourse to trade shares on the other. (Six months later, however, only a single company had taken advantage of it.) An earlier program linked Hong Kong with the Shanghai and Shenzhen exchanges.
• UBS, JPMorgan Chase and Nomura have set up majority-owned securities ventures, while Goldman Sachs, Morgan Stanley and Credit Suisse have applications pending. Citigroup is planning a wholly owned securities business.
• Amundi won approval to control a wealth-management venture in Shanghai, the first foreign company to do so. BlackRock and Temasek are in talks with a Chinese bank to start another.
• Vanguard, BlackRock, Fidelity International, Van Eck Associates, Neuberger Berman and Schroders have told regulators they intend to apply for a license to start mutual fund companies once the application window opens in April.
• Allianz SE got the green light in 2018 to set up the first entirely 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 outsider to win approval to build a bank-card network in China. Mastercard Inc. has applied for a joint-venture license with a Chinese partner. Visa Inc is seeking a bank card clearing institution license. Paypal Holdings Inc. acquired a 70% stake in a local company last year.
• JPMorgan is seeking full control of its futures and its fund management joint ventures.
• S&P Global Ratings won approval to do business on the mainland through a local unit in January 2019 and published its first onshore rating six months later.
China’s $45 trillion financial services industry. Even a sliver can be lucrative. Bloomberg Intelligence estimates that -- barring a major economic slowdown or change of course -- foreign banks and securities companies could be raking in profits of more than $9 billion a year in China by 2030. Guo Shuqing, China’s chief banking regulator, sees significant room for foreign investors: They held just 1.6% of banking assets and 5.8% of the insurance market as of May 2019, he said. The percentages have fluctuated over the years. In 2007, for example, the foreign share of Chinese banking assets was 2.3%.
The threat of financial decoupling looms with the Trump administration looking at restrictions on U.S. investments in Chinese companies and financial markets, a possible new front in the trade war. (China declared it would continue to open markets and encourage foreign investment.) There are also plenty of hidden barriers, including the challenge of cracking a market dominated by government-controlled rivals that have longstanding relationships with clients. The lengthy and often opaque application process also can be a deterrence. Visa and Mastercard, for example, have been waiting since 2015.
5. What about stocks and bonds?
They’re being slowly added to widely followed global benchmarks, including stock indexes by MSCI Inc. and FTSE Russell and, for bonds, the Bloomberg Barclays Global Aggregate Index and JPMorgan’s GBI-EM indexes. That’s expected to draw tens of billions of dollars in purchases initially from funds that track those gauges.
Bumpy. In late 2019 MSCI said it wouldn’t add any more yuan-denominated shares until China fixed long-standing concerns over market access. And not every opening is met with enthusiasm: Foreign investors had bought only a third of the total allotment at the time regulators scrapped the quota system for Chinese stocks and bonds in September. Market turbulence in recent years, including major stock selloffs, has dampened interest. Some investors also worry about being unable to repatriate their money due to China’s capital controls. (The government has long kept a tight grip on money flowing in and out so as to preserve the value of its currency, the yuan.)
7. What’s in it for China?
The benefits may be twofold: U.S. President Donald Trump accuses China of being a one-sided beneficiary of global commerce, so opening up makes the trade seem more balanced. And Chinese leaders have long described the moves as a useful way to improve the competitiveness of the domestic industry -- without challenging its dominance -- as well as to allocate capital more efficiently and attract foreign investment. Central bank governor Yi Gang has described the moves as “prudent, cautious, gradualist.”
--With assistance from Jun Luo.
To contact Bloomberg News staff for this story: Lucille Liu in Beijing at firstname.lastname@example.org;Jeanette Rodrigues in Mumbai at email@example.com
To contact the editors responsible for this story: Candice Zachariahs at firstname.lastname@example.org, Paul Geitner, Grant Clark