China is opening doors in another arena: Inviting in more foreign banks, insurance providers, and other financial services companies. China has also been making it easier for foreigners to buy its stocks and bonds — something many fund managers are required to do now that major index compilers are including Chinese assets in their gauges.
1. What’s the change?
China is allowing full foreign ownership of life insurers, futures, and mutual fund companies this year — in stages. Foreign ownership caps for securities firms came off April 1 as part of the trade agreement signed with the U.S. in January. China also pledged to take no longer than 90 days to decide on applications from electronic-payment service providers, including for wholly foreign-owned operations. Regulators cleared the way for full takeovers of local banks by foreigners in 2019, a year after it eased ownership caps.
Foreign companies can now also be lead underwriters for all types of bonds, and can control wealth management firms, pension fund managers and inter-dealer brokers. The Shanghai-London Stock Connect officially kicked off in June 2019, allowing companies listed on one bourse to trade shares on the other.
2. Who’s diving in?
Quite a few companies:
3. What’s the lure?
China’s $45 trillion financial services industry. Even a sliver can be lucrative. Before the pandemic, Bloomberg Intelligence estimated that — barring a major economic slowdown or change of course — foreign banks and securities companies could be raking in profits of more than $9 billion a year in China by 2030. Wealth management firms are looking at a market poised to reach $30 trillion in assets by 2023, according to consultancy Oliver Wyman. Guo Shuqing, China’s chief banking regulator, sees significant room for foreign investors: They held just 1.6% of banking assets and 5.8% of the insurance market as of May 2019, he said. The percentages have fluctuated; in 2007, for example, the foreign share of Chinese banking assets was 2.3%.
4. What barriers remain?
The lengthy and often opaque application process also can be a deterrence. Visa, for example, has been waiting since 2015. On top of all that, China’s gross domestic product shrank the most on a quarterly basis since at least 1992 as the world struggles with the pandemic.
5. What about stocks and bonds?
They’re being slowly added to widely followed global benchmarks, including stock indexes by MSCI Inc. and FTSE Russell and, for bonds, the Bloomberg Barclays Global Aggregate Index, JPMorgan’s GBI-EM indexes, and, starting in October 2021, FTSE Russell’s flagship World Government Bond Index. That’s expected to draw tens of billions of dollars in purchases initially from funds that track those gauges.
6. How’s that going?
Foreign investors had bought only a third of the total allotment at the time regulators scrapped the quota system for Chinese stocks and bonds in September. Market turbulence in recent years, including major stock sell-offs, has dampened interest.