China is to allow foreign companies to hold majority stakes in joint ventures for the first time, while removing entirely caps on shareholdings for banks, asset managers and, within five years, insurance sector firms.
However, it is unlikely that it was the intervention by Trump that caused the change of policy, with the timing likely to have been somewhere between coincidence and expedience.
“I think the reforms were already in Xi’s plan-book and would be rolled out irrespective of external pressure [from the US or elsewhere],” Aidan Yao, senior emerging Asia economist at AXA Investment Managers, told the South China Morning Post.
Specifically, foreign firms will be allowed to “hold a majority stake in joint ventures with mainland Chinese securities companies and life insurance joint ventures, and caps on foreign banks’ stakes in Chinese banks and asset managers will be removed”, China’s deputy finance minister Zhu Guangyao said on Friday.
The undertaking was confirmed in a press release authorised by China’s State Council today, indicating that it has been approved at the highest level.
This is the biggest change of regulatory approach to foreign businesses since 2007 when foreign banks were first allowed to enter into joint ventures with domestic Chinese ones.
Foreign firms now free to push for controlling stakes
Prior to today’s announcement, international banks that are not based in Hong Kong were obliged to do business on the mainland only as part of a joint venture with domestic banks, and they were prevented from owning a majority or controlling stake in the venture.
The statement also suggested that overseas interests will now be allowed to wholly own mainland-based investment banks – “securities brokerages”, to use the Chinese government parlance – and, in due course, insurance companies.
In fact, the only concrete commitment in terms of timings in the statement related to insurance firms, stating that foreign investors will be free to take up to a 51% stake within three years, with the cap removed entirely within five.
China observers will see this as a victory for the liberalising tendencies of the outgoing central bank governor Zhou Xiaochuan, who said earlier this year that lack of foreign competition had made Chinese financial institutions “lazy”.
The news was welcomed by overseas financial institutions with interests in the Chinese mainland market.
UBS China Strategy Board Eugene Qian said,“The Chinese government’s decision to allow foreign companies to take up to 51 per cent in securities joint venture represents an important step in further opening up China’s financial sector.
“China is a key market for UBS and… we continue to work towards increasing our stake in [joint venture] UBS Securities.”