China opens financial sector to foreign control

China’s financial services sector will be almost entirely open to foreign players in the next five years, China’s deputy finance minister Zhu Guangyao said on Friday.

The new rules, unveiled at a government briefing on Friday, will give global financial companies unprecedented access to the world’s second-largest economy. Today’s announcement follows statements by Chinese authorities on Thursday that restrictions in the country’s banking and financial sector would soon be eased, as Chinese leader Xi Jinping met with US President Trump as part of Trump’s Asia visit.

It marks another step in the gradual integration of China’s economy into global markets. In June, MSCI said it planned to add 222 China A Large Cap stocks to its Emerging Markets Index starting next year, which is likely to drive capital inflows from international institutional investors.

“The significant opening up in the banking industry, which scrapped the limit in shareholding percentage formerly set at 25 per cent, is above expectation,” said Chen Shujin, chief financial analyst with Huatai Securities in Hong Kong.
Nonetheless, she said that for China’s banking system as a whole the effect would be more limited.
“All Chinese cities have allowed locally incorporated foreign banks to engage in both local and foreign currency business since 2006, but foreign banks’ market share has remained below 2 per cent in China in the past 10 years,” she said.

Prior to Friday’s announcement, other banks had been looking to expand their operations in China. Earlier this year, UBS and Morgan Stanley said they would both increase their shareholding in their Chinese joint ventures to 49 per cent, the maximum previously allowed.