China has always been hesitant to open itself up to foreign investment with strict controls imposed by the government. This seems to be changing as China is now opening up to foreign investors. However, Beijing promises that it will take precautions to deal with the increasing risks and issues that could impact the financial industry.
The main feature that has many investors paying attention is now that foreign investors can get a stake with or control financial entities that include commercial lenders, pension fund managers and currency brokers. This is part of China’s pledge to open up and welcome more overseas investors into its financial sector.
Considering its large size, the Chinese market is an attractive target. Even single digit market shares can often lead to large profits. The problem for foreign firms is being able to navigate the market considering the strict regulatory schemes and the presence of state-backed competition.
Besides the formal opening up that was announced, there are other measures that will allow for better foreign participation in the Chinese market. One, overseas credit ratings companies now have the authority to rate bonds that are listed on the exchange and inter-bank market. Additionally, foreign institutions can now participate in the inter-bank bond market as lead underwriters.
Next, China will be scrapping foreign ownership limits in 2020 for securities firms, life insurers, fund firms, and futures firms. Additionally, foreign insurers can now have more than a quarter stake in Chinese insurance asset management companies. Finally, the need to have over 30 years of experience is being waived for foreign insurance companies.
Relaxed Laws For Foreign Investors
These are just some of the opening steps that China is taking to welcome foreign investors. The government has promised to make things easier going forward. Right now, foreigners control 1.6 percent of the nation’s banking assets and 5.8 percent of the insurance market. However, this will soon change as foreign banks and investors like the UBS Group AG, JPMorgan Chase & Co., and Nomura Holdings Inc. have been given permission to increase their stakes.
China’s move to open up is mainly because of slow economic growth. According to recent data, the Chinese economy has slowed down to 6.2 percent growth in the second quarter of this year. This is the lowest it has been since 1992
The Chinese government is hoping that these new measures would help in creating new drivers of growth. Besides these measures, Beijing is expected to release some new long-term and short-term measures to get the Chinese economy back on track.
