In the wake of the Chinese Communist Party’s 19th Party Congress, and US President Donald Trump’s visit to China, the Ministry of Finance has announced a high-level roadmap for broadening market access for foreign investors in the financial services industry. This policy development, long under discussion, is part of an effort by the Chinese leadership to bolster deteriorating foreign investor sentiment in the country. Some observers have suggested that the timing of the announcement—immediately after Mr. Trump’s visit—suggests that it is meant to be a kind of gift from Chinese President Xi Jinping to Mr. Trump. Others have remarked that at least some in the Trump administration were not expecting this announcement, and that its timing may have been chosen to emphasize that China is committed to opening its markets, but on its own timeline.
Announced on November 10 by Vice Minister of Finance Zhu Guangyao, the roadmap (which was conveyed in oral form, not in the form of a written document) suggests that the Chinese government may fulfill some longstanding requests of foreign investors interested in the industry. According to Mr. Zhu:
- The current 49% cap on foreign investment in securities companies, securities fund management companies, and futures companies will be raised to 51%; three years after this change, the cap will be lifted altogether, allowing 100% foreign ownership.
- The current restriction that foreign commercial banks may only own up to 20% of a domestic Chinese bank or financial asset management company (or 25% if there are multiple foreign investors) will be eliminated, allowing for 100% foreign ownership.
- In three years (the starting point is unclear), foreign investors will be allowed to own up to 51% of life insurance companies (currently, the cap is set at no more than 50%); this cap will be eliminated, allowing for 100% foreign ownership, after five years.
The government’s intent to liberalize market access in the financial services sector does not come as a surprise. Since the beginning of 2017, the State Council has issued multiple notices recommending such changes. The newly announced roadmap appears to be a natural next step in the evolution of this policy.
It is important for foreign investors to keep in mind that this roadmap was a high-level oral announcement, with detailed implementing rules yet to be issued. The timing of and substantive details contained in those implementing rules should not be taken for granted at this time.
For instance, it is possible that China could use the anticipation surrounding these prospective changes as leverage for negotiating concessions from the U.S., thereby introducing a certain degree of uncertainty. During Mr. Trump’s visit to Beijing, Chinese officials sought lesser scrutiny for Chinese investments in the U.S. (particularly in the high-tech sector), asked for the granting of a financial license for the China International Capital Corporation (“CICC”), and urged prudence in the use of trade remedies. With a number of different agencies involved in regulating financial services, internal political factors could also cause delays. Just before the announcement of the new roadmap, a spokesperson for the Ministry of Foreign Affairs said that the easing of market entry barriers would take place “in accordance with China’s own timetable and roadmap.”
The substantive details can also affect the practical benefits of this potential policy change. As government agencies begin to formulate implementation rules, foreign investors are advised to carefully monitor accompanying details such as registered capital requirements, permitted business scopes, application quotas, geographic applicability (e.g., nationwide vs. in free trade zones), anti-trust treatment, rules related to foreign investment in state-owned enterprises, and provisions on the remittance of profits overseas.
Despite uncertainties, visible progress towards the opening of the financial services sector to greater foreign investment is a significant, positive development for a foreign business community in China that is seeking greater recognition of its contributions to the country’s development and a renewed commitment to continuing China’s long and gradual process of opening its markets.