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China removes foreign-stake limits in banks, asset managers

[HONG KONG] China removed limits on foreign holdings in domestic banks and asset management companies, formalising a previously announced step toward opening its US$40 trillion financial sector.

Overseas financial institutions will now be treated the same as local companies, the China Banking and Insurance Regulatory Commission said in a statement late Thursday, taking forward a process started last year. Foreign stakes were previously capped at 20 per cent for a single institution and 25 per cent for a group of foreign investors.

President Xi Jinping is pushing through with his plan as China counters criticism from US President Donald Trump that it's been a one-sided beneficiary of global commerce. A number of initiatives were announced in November and most are expected to be implemented by the end of this year amid an escalating trade war.

Nomura Holdings Inc and JPMorgan Chase & Co have sought to take advantage of the easing, including by setting up joint ventures in China. Bank of Communications Co would be open to HSBC Holdings Plc raising its stake in the company, should the Hong Kong-based bank wish, Bocom's board secretary Gu Sheng said on Thursday.

"There is a genuine desire to open up the financial sector for a host of reasons, including wanting more foreign capital," said Andrew Polk, the founding partner of Beijing-based research firm Trivium China.

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"Regulators are opening up the banking sector, at the same time they are increasing regulatory scrutiny and macro-prudential oversight. In this way banks are allowed to enter an increasingly constricting space."

Foreign banks held 2.9 trillion yuan (S$578.97 billion) of assets in China at the end of 2016, some 1.3 per cent of the total and the lowest share since 2003, CBIRC data show. They earned 12.8 billion yuan in the nation last year, less than 1 per cent of the profits at Chinese counterparts.

China's banking sector is dominated by connected state-owned players, and the size and complexity of the market will make foreign peers cautious, according to Bloomberg Economics chief economist Tom Orlik. Analysts also said China's capital account opening - with all the volatility that can entail - will need to resume so investors know they can get their cash out, not just in.

The prospective gains, however, are enticing. Earnings at foreign banks are set to grow more than 10 times by 2030, according to Bloomberg Intelligence. Meanwhile, for foreign money managers, a 6 per cent market share by 2030 would mean US$1.8 trillion in assets, according to a BI estimate published in May.


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