China’s financial services market alluring for foreign institutions

By Wen Sheng Source:Global Times Published: 2019/12/12 22:18:40


Illustration: Luo Xuan/GT

Global financial giants have long eyed China's lucrative financial services market, which remains in its infancy. Opportunities abound as the sector has now opened to foreign institutions. 

Compared with the world's developed economies, China's stock and bond markets are far from fully developed. It is difficult at present to fathom the growth potential of the investment sector once it sees an influx of capital from both home and abroad.

However, not every foreign financial institution can tap into China's financial market. Naturally, entities from countries which are friendly to China will be favored by the Chinese people.

The 17-month-long, relentless trade war Washington has forced on China has taught the US one thing: China's market size must not be taken for granted or despised. Losing China's market share will bring acute pain. 

When Chinese traders stopped buying US farm produce, it was American farmers that suffered. A significant number of them have been so disgruntled with the tariff war that they have threatened to vote against US President Donald Trump in the next election. 

China knows the attraction of its huge market, which is now backed by a resilient, vast economy and a growing middle income group up to 450 million consumers. In 2020, the aggregate retail volume is expected to rise by 7.5 to 8.5 percent from 2019. Additionally, pent-up infrastructure investments and China's new technology-innovation strength will shore the economy up further.

To explore even greater growth potential, Chinese regulators announced the long-awaited opening-up of the country's financial services industry in 2019. From January 1, 2020, overseas financial institutions will be permitted to establish wholly foreign-owned commercial banks, insurance companies and securities brokerages. And, the need for foreign lenders to gain prior approval to conduct local yuan business will also be removed, according to a government circular. Meanwhile, previous quotas for qualified foreign institutional investors have been scrapped - meaning China's giant stock and bond markets are fully embracing overseas investment. 

With China's equities remaining broadly cheaper than peers in developed markets, foreign capital is surging in, snapping up blue chips and Chinese technology startup shares. Foreign institutions have also bought large sums of Chinese bonds due to their solid returns and sound liquidity conditions. 

By letting in foreign institutions and capital, China gains more leverage to expedite crucial reforms in financial services management and development strategy. This will allow the country to become more competitive in a global context, and will support China's financial-sector growth in the coming years. 

Facing a brutal trade war and strategic pressure from the US government, China's move to embrace foreign financial services institutions is proof that the country's pledge to pursue multilateralism and global cooperation is being upheld. 

By integrating China's financial market further into the world market, the nation is displaying confidence that its market can be shared and will not be closed. The world prospers on the basis of free trade, free investment and friendly collaboration. Unilateralism and protectionism will lead to dead ends. 

The author is an editor with the Global Times.


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