China Moves To Expand Financial Center Access

Call it the “opening of China,” redux.

China has taken, what The Wall Street Journal termed, “a major step” in boosting global access to its financial sector. Through a series of announcements from the government, there has been some lifting of rules governing foreign ownership of firms across the banking and securities sectors.

Announcements by Vice Finance Minister Zhu Guangyao indicate that changes will be in the offing “very quickly.” The way is being paved for foreigners to build and maintain majority stakes in Chinese commercial banks, funds and other enterprises.  In addition, the WSJ stated, firms outside China will be able to acquire Chinese insurance outfits.

Specifically, foreign firms will be able to own as much as 51 percent of domestic securities firms operating in China, which increases the previous 49 percent cap.  That 51 percent limit will be phased out after three years. As for life insurance firms, a 51 percent limit will be in place and will be eliminated in five years. Investment limits for bank stakes — now at 20 percent for group investors — will also be lifted.

The eventuality is that U.S. heavy-hitters in banking and on Wall Street, such as JPMorgan Chase and Goldman Sachs, may look to bring weight to bear in China, moving beyond the traditional confines of joint ventures (JV) and looking toward active trading in securities and money management. Some firms are already at the ownership thresholds for such ventures, as Morgan Stanley, for example, has 49 percent ownership of a JV, and UBS might be seeking to bring its own stake in a JV to that level.

The moves, of course, come after President Donald Trump made his own visit to China and held a summit with President Xi Jinping.