China Opens Up More Financial Sectors to Foreign Investment

Since 2017, China has been given a series of announcement and regulation to open up the financial industry to foreign investors. The Free Trade Zone first allowed foreign banks to setup shops in the zone.

Despite the recent China US trade tension, foreign owned Insurance companies and security asset management companies were welcome to open majority foreign owned subsidiaries in China. UBS Group AG, JPMorgan Chase & Co. and Nomura Holdings Inc. have all won approval from regulators for majority control of their local securities joint ventures.

With the growing personal income of the Chinese people, China is currently the world‘s second largest wealth management market. Limited domestic investment products are unable to satisfy the rising investment demands, leading to more personal assets flow to overseas markets in unofficial way.

For investors, China has been an untapped market, not only can they find more clients among wealthy Chinese individuals, but also new China focused products will help asset management companies to diversify portfolios and hedge investment risks.

Recently, the Office of the Financial Committee of Chinese State Council announced 11 measures to promote the further opening of the financial industry on July 20, 2019. These measures are:

  • Foreign-invested companies are allowed to conduct credit rating business in China, including all types of bond ratings in the inter-bank bond market and the exchange bond market.
  • Overseas financial institutions are encouraged to participate in the establishment and investment of shares.
  • Overseas asset management institutions are allowed to establish joint ventures with subsidiaries of Chinese banks or insurance companies to establish wealth management companies which are controlled by the foreign side.
  • Overseas financial institutions are allowed to set up or take stakes in pension management companies.
  • Foreign investors are encouraged to establish wholly owned currency brokerage companies, or hold shares in them.
  • The shareholding ratio of foreign insurance companies in the total equity of foreign-invested life insurance companies has been increased from 51 to 100 percent. The schedule for the transition period has been pushed ahead to 2020 from 2021.
  • The regulation that domestic insurance companies shall hold no less than 75 percent of the total shares of the insurance asset management company is no longer in effect, allowing foreign investors to hold more than 25 percent of the shares.
  • The entry qualifications for foreign-invested insurance companies are relaxed, with the cancellation of the entry restriction of 30-year business life requirement.
  • The schedule for canceling the limit on foreign-invested shareholding ratio for securities companies, fund management companies and futures companies has been pushed ahead from 2021 to 2020.
  • Foreign-funded institutions are allowed to obtain the Class A lead underwriting license for the inter-bank bond market.
  • The investment of overseas institutional investors is further facilitated in the inter-bank bond market.

The 11 measures once again sent a clear welcome sight to foreign investors in the financial sector, foreign managers can speed up their China strategies on products, market development, and hiring talents with these sit in the background.

There are still some challenges ahead, China is still under currency control, how can investors’ funds flow in and out of China to purchase overseas products? Also, when it comes to getting the license and approvals, Chinese financial regulators enjoy significant discretionary power in granting approvals to well-known financial companies. Although broader opportunities should become available as additional detailed regulations emerge.