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Chinese Vice Premier Liu He shows the way to US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer as they proceed to their meeting at the Diaoyutai State Guesthouse in Beijing on May 1, 2019. Photo: AFP

As US-China deal nears, Beijing relaxes rules for foreign banks and insurers, in concession to Washington

  • China announced a dozen new measures on Wednesday to further open up its US$44 trillion financial sector to foreign banks and insurers
  • Analysts are viewing the move as a clear concession to US negotiators and a sign that a deal to end the trade war is imminent

China announced a dozen new measures on Wednesday to further open up its US$44 trillion financial sector to foreign banks and insurers in a clear move to comply with any deal with the United States to end the trade war.

The announcement came while a US negotiating team headed by US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin were holding the latest round of talks in Beijing with Chinese counterparts led by Vice-Premier Liu He.

While no details of Wednesday’s negotiations were forthcoming, Mnuchin told reporters upon leaving the meeting that they were “productive”. Hopes are high that a trade deal can be reached soon.

“We hope within the next two rounds in China and in [Washington] DC to be at the point where we can either recommend to the president we have a deal or make a recommendation that we do not,” Mnuchin said in a taped interview broadcast on Fox News on Monday morning.

A pedestrian walks past the headquarters of China Banking and Insurance Regulatory Commission (CBIRC) in Beijing. Photo: DFIC

The Chinese trade delegation is due to travel to Washington next week for another round of talks, which are expected to begin on Tuesday.

The financial market opening measures announced by the China Banking and Insurance Regulatory Commission (CBIRC) on Wednesday appear to be an initial implementation of the expected agreement.

Existing caps on both foreign and domestic single shareholders’ investments in local commercial banks will be removed. Foreign banks will be exempted from having minimum assets of US$20 billion by the end of 2019 to be able to apply to open a branch in China, according to the CBIRC notice.

The CBIRC linked the market opening moves to China’s own domestic requirements rather than to the trade deal. This is being perceived as an effort to avoid any connection to potentially unpopular concessions to the US.

The move is intended to support “China’s self-development needs for its economy and finance”, and will help to “stimulate market vitality and improve the management and competitiveness of the financial industry”, said Guo Shuqing, head of the CBIRC and party secretary of the Chinese central bank.

A man walks at Lujiazui financial district of Pudong in Shanghai, China. Photo: Reuters

But analysts said the moves were a clear concession by China to the US to help the world’s two largest economies conclude a deal in coming weeks.

Ding Shuang, chief Greater China economist for Standard Chartered Bank, said the CBIRC gave much more detail on the new regulations than it usually does, suggesting the trade talks may have acted as a “catalyst”.

“I think all these measures have been mentioned in the trade talks. The announcement was made before a trade deal has been reached, which shows China’s sincerity in the trade talks,” Ding added.

Ding’s view was echoed by Nick Marro, Asia analyst with The Economist Intelligence Unit (EIU), who believed the moves are “likely owing in part to pressure from the trade talks”, but also represent “a genuine willingness to better link China with global financial markets”.

Over the past few years, the Chinese government has made it clear that it wished to speed up the speed of its financial market liberalisation, and open it further to foreign entities. Last year, the banking regulator removed the limits on foreign ownership of Chinese lenders and bad debt managers.

Before that, the pace of opening up had slowed, with foreign companies losing market share or not being able to grow their businesses due to government restrictions.

Chinese people walk by a construction site at the Central Business District in Beijing,. Photo: AP

The share of total assets held foreign banks in China has declined since 2007, while insurers’ share has grown only slowly over the same period. In 2007 foreign banks represented 2.38 per cent of China’s total banking assets and foreign insurers accounted for 6.24 per cent.

By this year, foreign banks’ share had shrunk to 1.64 per cent of industry assets, while insurers’ share of assets rose slightly to 6.36 per cent, according to data from the banking regulator.

Other measures announced by CBIRC include allowing foreign financial institutions to invest in foreign-invested insurance companies in China, an end to the rule that meant only Chinese-owned or majority Chinese shareholders of joint ventures could operate as financial institutions, and allowing foreign banks to conduct yuan to foreign currency transactions as soon as they open for business on the mainland.

The requirement that foreign insurance brokerages have been in operation for at least 30 years and have total assets of no less than US$200 million to do business in China will also be scrapped.

Amy Yuan Zhuang, Nordea's chief analyst for Asia, said that a complete opening up of China's financial markets will benefit the economy. But she believes that while the banking and insurance regulator would offer some flexibility for foreign asset managers, banks and insurers, such as removing investment caps, the overall pace of reform is likely to be cautious.

“Opening up [to foreign players] means there will be more [financial] products for companies and individuals. I am cautious on how quickly we are going to see this happen,” said Zhuang. “China's financial sector is an important tool [for the Chinese government] to stimulate the economy as well as manage financial risks.”

“China’s regime of strong capital controls, as well as its restrictions on data sharing and mandates on [domestic] technology procurement, will pose challenges to foreign financial firms in fully accessing the Chinese market. While these moves are positive steps forward, they do not eliminate many other existing obstacles facing foreign banks and insurers on the ground,” added Marro at the EIU.

This article appeared in the South China Morning Post print edition as: Beijing acts to open up financial industryBeijing takes 12 steps to open up financial industry