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China announces significant plans to open-up its financial services sector
China announces significant plans to open-up its financial services sector
On 11 April 2018, at the Boao Forum for Asia Annual Conference 2018 , Mr Yi Gang, Governor of China’s Central Bank, the People’s Bank of China (PBOC), announced plans for significant reforms to China’s financial services sector which will usher in a new era of liberalisation of existing restrictions to foreign investors. The new reform measures will provide many new opportunities for cooperation between Chinese and foreign companies in the financial services industries. Some of these reforms will be introduced by the end of 2018, with more coming within the next three years.
This briefing note will seek to outline the key areas as highlighted in the announcements where foreign financial institutions will be interested to hear for their future business strategy and planning in China.
A level playing field
At the Conference, the PBOC signalled that there will be a level playing field for Chinese and foreign financial services companies to do business in China. The Governor outlined the following changes which are due to be implemented in the coming months:
1
Remove restrictions on the percentage of the foreign ownership of banks and financial asset management companies, and treat all foreign and domestic capital equally; and at the same time, allow foreign banks to set up both branches and subsidiaries at the same time in China;
2
Relax the upper limit of foreign shareholdings of companies dealing in securities, futures, fund management and life insurance to 51%, and with the potential to remove all restrictions in three years;
3
Remove the requirement for there to be at least one domestic shareholder of a joint-venture company which deals in securities;
4
In order to facilitate the cooperation between mainland and Hong Kong stock exchanges, the daily stock connect limit will be increased four times from 1st May 2018 onwards;
5
Allow eligible foreign investors to come to China to carry out insurance brokerage and loss adjusting business; and
6
The business scope of foreign-invested insurance brokerage companies will be extended in line consistent with Chinese counterparts.
Significant reforms within this year
Moreover, the following reform measures will be introduced before the end of 2018:
1
Encourage the introduction of foreign capital in banking, finance, trust, financial leasing, car finance, currency brokerage, and consumer finance;
2
Remove the upper limit on the proportion of foreign capital held by foreign investors in newly established financial asset investment and wealth management companies that are set up by commercial banks;
3
Significantly expand the scope business for foreign banks;
4
Remove the limits on the scope of business for joint venture securities company, and domestic and foreign investment will be treated equally; and
5
Completely remove the requirement that in order to establish an insurance company, a foreign insurer must set up a representative office in China 2 years prior to establishment.
The Shanghai-London stock connect
In the announcement, it is said that the proposed Shanghai-London stock connect shall become live before the end of 2018. This link is set to allow Chinese investors to direct access to listed shares in the UK and vice versa, thereby allowing more international investors into China’s stock markets as well as making the Chinese currency RMB a more global currency.
Conclusion
China’s financial services sector is one of the remaining areas that are currently not fully open to foreign investors. The new measures to be adopted in the coming months present new opportunities for foreign financial institution groups and investors who want to participate in China’s fast-growing economy. A level playing field for foreign and Chinese capital and a more open and liberalised market can be reasonably expected to be ready in the next three years. We will closely follow the implementation of these measures by the PBOC over the coming months.
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