China's financial market opening signals confidence and strength

China Plus Published: 2019-10-17 21:38:11
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Note: The following article is taken from the Chinese-language "Commentaries on International Affairs."

China on Tuesday released revised regulations that further open up its insurance and banking sectors to foreign investment. Foreign insurance groups now can set up foreign-funded insurance firms on the Chinese mainland, while overseas financial institutions can be shareholders of foreign-funded insurance firms. And foreign lenders can establish wholly-owned banks on the mainland, and prior approvals are no longer needed for foreign lenders doing business in renminbi.

Allianz (China) Insurance has been approved to become the first fully-owned foreign insurance holding company on the Chinese mainland. [Photo: VCG]

Allianz (China) Insurance has been approved to become the first fully-owned foreign insurance holding company on the Chinese mainland. [Photo: VCG]

It takes courage for a country to open up its financial markets to international investors, as the finance system is the lifeline of an economy. China has the courage it takes first and foremost because of its sound long-term economic fundamentals: Its economy has continued to steadily grow despite global economic headwinds – it was up 6.3 percent in the first six months of the year over the same period last year, making it a leader among the major economies. And as the economy shifts towards higher quality development, a new momentum for growth is being unleashed. In the first eight months of the year, the growth of information technology service industry outperformed that achieved in the service industry overall. And the growth of the value-added high-tech manufacturing sector was much higher than what was achieved by all industrial enterprises with annual main business revenue of 20 million yuan (close to 3 million U.S. dollars) or more. These results help to illustrate why the World Economic Forum ranked China 39th in the category of macroeconomic stability, with a score of 98.8 in its 2019 Global Competitiveness Report.

The growing competitiveness of China's financial institutions is another reason why it's a good time for a further opening of its financial markets. The financial sector has around 300 trillion yuan (about 42 trillion U.S. dollars) in assets, nearly 90 percent of which belongs to the banks. And China's banks maintained their grip on The Banker's latest ranking of the Top 1,000 World Banks, clinching the top four positions for the second year in a row in terms of Tier 1 capital – the measure of strength used to compile the ranking. In total, China had 136 banks that made it into the rankings.

The fact that China's market mechanisms are constantly improving also helps to lay the foundation for a further opening of the country's financial markets. This has been recognized by the leading global index providers MSCI, FTSE Russell, and Standard Poor's, which have all included Chinese A-shares in their major index products. And renminbi-denominated government and policy bank securities have been added to the Bloomberg Barclays Global Aggregate Index.

Foreign investors have already been quick to embrace new opportunities provided by China's further opening. The UBS Group has obtained absolute control of Beijing-based UBS Securities. Standard & Poor's has got the green light to enter the country's credit rating market. And SWIFT has incorporated a new wholly-owned foreign entity in Beijing. More and more foreign institutions will no doubt come to China to make the most of the vast opportunities on offer.

The increasingly internationalization of China's financial markets should be guided by three things. The first is pre-entry national treatment and the negative list approach, which is to say that foreign-invested firms should be afforded the same treatment as domestic firms and the sectors where foreign investment is restricted should be clearly defined. Second, further opening will be promoted by the reform of the exchange rate mechanism and capital account convertibility process. And third, measures to improve supervision and prevent risk should go hand in hand with the increase in openness.

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LU Xiankun Professor LU Xiankun is Managing Director of LEDECO Geneva and Associate Partner of IDEAS Centre Geneva. He is Emeritus Professor of China Institute for WTO Studies of the University of International Business and Economics (UIBE) and Wuhan University (WHU) of China and visiting professor or senior research fellow of some other universities and think tanks in China and Europe. He also sits in management of some international business associations and companies, including as Senior Vice President of Shenzhen UEB Technology LTD., a leading e-commerce company of China. Previously, Mr. LU was senior official of Chinese Ministry of Commerce and senior diplomat posted in Europe, including in Geneva as Counsellor and Head of Division of the Permanent Mission of China to the WTO and in Brussels as Commercial Secretary of the Permanent Mission of China to the EU. Benjamin Cavender Benjamin Cavender is a Shanghai based consultant with more than 11 years of experience helping companies understand consumer behavior and develop go to market strategies for China. He is a frequent speaker on economic and consumer trends in China and is often featured on CNBC, Bloomberg, and Channel News Asia. Sara Hsu Sara Hsu is an associate professor from the State University of New York at New Paltz. She is a regular commentator on Chinese economy. Xu Qinduo Xu Qinduo is CRI's former chief correspondent to Washington DC, the United States. He works as the producer, host and commentator for TODAY, a flagship talk show on current affairs. Mr. Xu contributes regularly to English-language newspapers including Shenzhen Daily and Global Times as well as Chinese-language radio and TV services. Lin Shaowen A radio person, Mr. Lin Shaowen is strongly interested in international relations and Chinese politics. As China is quite often misunderstood in the rest of the world, he feels the need to better present the true picture of the country, the policies and meanings. So he talks a lot and is often seen debating. Then friends find a critical Lin Shaowen criticizing and criticized. George N. Tzogopoulos Dr George N. Tzogopoulos is an expert in media and politics/international relations as well as Chinese affairs. He is Senior Research Fellow at the Centre International de Européenne (CIFE) and Visiting Lecturer at the European Institute affiliated with it and is teaching international relations at the Department of Law of the Democritus University of Thrace. George is the author of two books: US Foreign Policy in the European Media: Framing the Rise and Fall of Neoconservatism (IB TAURIS) and The Greek Crisis in the Media: Stereotyping in the International Press (Ashgate) as well as the founder of, an institutional partner of CRI Greek. David Morris David Morris is the Pacific Islands Trade and Investment Commissioner in China, a former Australian diplomat and senior political adviser. Harvey Dzodin After a distinguished career in the US government and American media Dr. Harvey Dzodin is now a Beijing-based freelance columnist for several media outlets. While living in Beijing, he has published over 200 columns with an emphasis on arts, culture and the Belt & Road initiative. He is also a sought-after speaker and advisor in China and abroad. He currently serves as Nonresident Research Fellow of the think tank Center for China and Globalization and Senior Advisor of Tsinghua University National Image Research Center specializing in city branding. Dr. Dzodin was a political appointee of President Jimmy Carter and served as lawyer to a presidential commission. Upon the nomination of the White House and the US State Department he served at the United Nations Office in Vienna, Austria. He was Director and Vice President of the ABC Television in New York for more than two decades.