For global investment banks, the long wait for a more level playing field in China is finally drawing to a close.
China on Wednesday detailed a timeline to further open parts its financial sector by June 30, easing concern that the historic move would be derailed by escalating trade tensions amid U.S. President Donald Trump’s threat to impose more tariffs. Additional easing, like giving foreign securities firms freer reins to enter new businesses, will follow by year-end.
Global investment banks have long been sidelined in one of the world’s fastest-growing financial markets, where caps on ownership of local joint ventures have stymied their expansion. For firms such as Morgan Stanley and Citigroup Inc., which have securities JVs in China, the relaxed restrictions means they may soon be able to operate on equal footing with domestic competitors.
“This is a huge thing,” said Paul Schulte, chairman of Hong Kong-based Schulte Research, an independent research firm that focuses on the financial industry. “To have something where you have greater autonomy, a fully-owned integrated business over a 3-year period, is a pretty good opportunity presented to them.”
Among changes to be implemented by June 30 is allowing foreign firms to take majority stakes in local JVs, People’s Bank of China Governor Yi Gang said on Wednesday at the Boao Forum on the southern island of Hainan. His comments came a day after Chinese President Xi Jinping used a speech at the event to stick to the promise of financial-market opening even in the face of a more hostile trade posture by the Trump administration.
Widening Access
“While the opening up widens foreign capital access and reduces business restrictions, prudent regulation will be applied to businesses with all kinds of ownership,” Yi said. “I’m confident that China’s financial market will be a more competitive market, better regulated and also serve the real economy much better, with fair competition and a level playing field.”
Among changes most welcomed by foreign securities firms, they’ll no longer be required to operate their ventures with a local brokerage. That would allow foreign institutions to partner with companies outside the industry and remove persistent conflict-of-interest concerns, according to senior bank officials who asked not to be identified discussing a sensitive matter.
Schulte, who heads the research firm bearing his name, said global investment banks would prefer a wholly-owned subsidiary since they have expressed “dissatisfaction and unhappiness” with their joint venture partners in the past. The easing would allow global banks to operate as “full-service” financial entities, akin to the model in the West, he said.
JPMorgan Chase & Co. and Citigroup said in separate statements that they welcome China’s moves to further liberalize the financial sector and will continue to evaluate options to strengthen their positions in China. The new rules would enable them to apply for broader licenses and get into businesses such as nationwide securities trading, an area only Goldman Sachs Group Inc. and UBS Group AG JVs are currently involved in.
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HSBC: Became the only foreign firm to win a majority-owned securities joint venture last year, based in the financial free-trade zone of Qianhai in the southern province of Guangdong.