Foreign capital eyes opportunities as China liberalizes further

2019-06-27 10:04:07 source: CCTV

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As Beijing moves to further open the country's financial sector, more and more foreign players are accelerating their expansion in China, despite ongoing trade tensions between China and the US.


A series of moves this month has marked the further opening of China's financial sector - announcement of the Shanghai London Stock Connect, A-share inclusion in the FTSE Russell Index, and establishment of China-Japan ETF Connects. As the Chinese central government further liberalizes the financial sector, more and more foreign firms are getting ready to move in.


One consultant in Shanghai who provides business suggestions to foreign financial firms says they are seeing growing confidence in China from international firms. "We do see more presence now, and more investment money is thinking to enhance or enlarge their presence in Beijing, Shanghai, Shenzhen, in particular, Shanghai. At the same time, very interestingly, we've also been talking to some investors, and we do see some of them are thinking about the western part of China. Because of the Belt and Road Initiative, that area, there are a lot of trade and opportunities. So the financing and banking services demand will be huge," said Gabriel Wong, partner with PWC Shanghai Branch.


Over the past several months Beijing has announced a variety of policies in the securities, banking, and insurance sectors to allow further participation by foreign companies. Estimates from Bloomberg say that in 2030 foreign life insurance companies in China could be taking in some 232 billion US dollars in premiums. The company estimates that in the same year, foreign securities firms in Shanghai would be making 1.6 billion dollars of profit, and foreign banks around 9 billion dollars. Big financial hubs like Shanghai and Beijing have been the quickest to see the resulting changes.


A property expert in Shanghai says foreign investment in the property sector has increased substantially since the fourth quarter last year, with most of the money coming from foreign insurance and investment companies. The leasing market for financial service companies is also very active.


"In 2014, investment from foreign companies in the property market was around 2.2 billion yuan, but it soared to 5.2 billion in 2018, and in the first quarter this year, to 7.5 billion yuan. Leasing from foreign financial firms is also expanding. They are moving from the major CBD to secondary CBDs, but doubling or tripling their office space, since the unit prices are cheaper," said Shao Minghao, Financial Director of Shanghai Urban Real Estate Appraisal Corporation.


One example Shao gives is the recent leasing of a 13,000 square meters' office space in Pudong by Tokyo-based Mitsubishi UFJ Financial Group. Industry observers say that while foreign players are waiting to see more detailed plans of China's further financial opening up, they are preparing now, so they can be ready to move in quickly once the new regulations land.


China has quickened the pace of opening up the financial market in the first quarter of 2019. In May, the government issued 12 new rules, including lifting equity caps in Chinese commercial banks for both domestic and overseas banks, and canceling several asset requirements. Foreign banks don't need to have 10 billion dollars in assets before setting up a legal entity in China or 20 billion dollars before starting a branch.


In June at the Lujiazui Forum, Yi Huiman, chairman of China Securities Regulatory Commission announced nine more measures to open up China's capital market. He says China will relax some regulations to attract more foreign institutional investors to the Chinese market. For example, overseas shareholders of joint brokerages will be treated the same way as their Chinese counterparts. Qualifications for stakeholders will be adjusted, especially in asset requirements.


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