China opens its financial markets to foreigners

China's continuing trade dispute with the US appears to have prompted Beijing to accelerate moves to open its financial sector to foreign institutions next year.

Chinese and American flags over a background showing financial markets
The China Securities Regulatory Commission (CSRC), the nation’s securities watchdog, has published a timeframe for abolishing foreign ownership restrictions on futures, securities and fund management companies.According to the South China Morning Post (SCMP), the move represents "the latest sign that Beijing is accelerating efforts to open up its finance sector amid its gruelling trade war with the US".

Schedule for deregulation in China

The CSRC has announced that limits on foreign investors in mainland-based futures firms will be abolished from January 1, while limits on mutual fund companies will be removed on April 1. Existing caps on securities firms will be scrapped from December 1 next year.The deregulation paves the way for foreign institutions to set up wholly-owned units on the mainland to deal with futures, mutual fund management and securities businesses, reported the SCMP.“Scrapping the ownership limits will give foreign players an opportunity to better tap the mainland securities markets,” said Wang Feng, chairman of Shanghai-based financial services firm Ye Lang Capital. “But the market will still be dominated by China’s home-grown companies for a few years.”

Deregulation to make Chinese finance companies more competitive

Last year, Beijing lifted the 49% cap on holdings by foreign investors resulting in UBS, JPMorgan and Nomura receiving approval to hold 51% stakes in joint ventures on the mainland.Under the latest scheme, foreign institutions will be able to own these mainland businesses outright, where they will be in competition with some 160 domestically-owned financial companies.“It will take some time before foreign companies can grow big in China to fully compete with their Chinese rivals,” said Ivan Li, an asset manager with the hedge fund Loyal Wealth Management. “But competition will eventually benefit companies seeking to raise funds on the stock market and equity investors.”

What is "The Asian Century"

At present, mainland brokerages mainly rely on brokerage fees to make profits. The SCMP commented: "They have been encouraged by the regulator to diversify their revenue sources, into things like margin financing and wealth management, to enhance their competitiveness.

Beijing fights fears of foreign companies gaining access to Chinese financial markets

"Beijing has been battered by fears that local securities and fund management companies would be easily edged out by giant foreign players if it granted them full access to the market."The CSRC was reluctant to raise the foreign ownership limit in the past decade as it wanted to give domestic players more time to expand their business scale and strengthen their financial muscle."Now, however, it seems that with the Chinese economy suffering because of the ongoing trade dispute with the US, the CSRC has been convinced to open up its financial and securities markets.

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