China: Growth moderation amid trade risk and domestic deleveraging

China announced a plan of furthering its long-delayed financial opening

Coming hard on the heels of the Sino-US trade war, China's authorities have made new moves on the front of financial liberalization. Given the importance of the export sector to China's economy, the authorities are willing to voluntarily open the domestic financial market in exchange for the US concession on trade issues. Moreover, pressures from other trade partners are mounting as well. The authorities have felt the urgency to honor their promise to the WTO and accelerate the long-delayed opening of domestic financial market.

In his speech at the 17th Boao Forum in April 2018, President Xi Jinping announced a plan to further open China's financial market. At the same event, the Chinese Central Banker Yi Gang promulgated the details of the opening-up policies in the financial sector, including removing the restrictions on foreign shareholdings in banks and asset management companies. Governor Yi also announced the following measures to be implemented in the first half of this year:

  • Remove the foreign ownership cap for banks and asset management companies, treating domestic and foreign capital equally.

  • Lift the foreign ownership cap to 51% for securities companies, fund managers, futures companies, and life insurers, and remove the cap in three years.

  • No longer require joint-funded securities companies to have at least one local securities company as a shareholder.

  • Foreign insurance companies will no longer need to have a representative office in China for two consecutive years prior to establishing a subsidiary.

  • Encourage foreign ownership in trust, financial leasing, auto finance, currency brokerage and consumer finance.

  • Apply no cap to foreign ownership in financial asset investment companies and wealth management companies newly established by commercial banks.

In addition, the PBoC will roll out the following measures within this year to expand market access:

  • Lift restrictions on the business scope of foreign-invested insurance brokerage companies, treating them as equals of domestic companies.

  • Allow foreign banks to set up branches and subsidiaries.

  • Further improve the stock market connectivity between the mainland and Hong Kong by increasing the daily quota threefold.

  • Allow eligible foreign investors to provide insurance agent and loss adjuster services in China.

  • Substantially expand the business scope of foreign banks.

  • Remove restrictions on the business scope of jointly-funded securities companies, treating domestic and foreign institutions equally.

  • Launch the Shanghai-London Stock Connect.

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