China removed limits on foreign ownership of its banks and bad-debt managers, pushing ahead with a previously announced plan to open its financial system despite rising trade tensions with the U.S.
Overseas financial institutions will now be treated the same as local companies, the China Banking and Insurance Regulatory Commission said in a statement last week, following through on a pledge announced last year. Stakes were previously capped at 20 percent for a single foreign institution and 25 percent for a group.
The move is part of China’s longstanding effort to increase its integration with the global financial system, but it may also help President Xi Jinping counter criticism from U.S. President Donald Trump that China has been a one-sided beneficiary of global commerce. Xi’s government announced a number of financial opening initiatives in November, before the tit-for-tat trade conflict that saw the world’s biggest economies raise tariffs on USD50 billion of each other’s exports. Most of the Chinese opening measures are expected to take effect by the end of this year.
“China is showing they are keeping their promise and that regulators are interested in opening up, rather than closing down,” said Chen Long, a Beijing-based economist at research firm Gavekal Dragonomics. “Given the ongoing trade dispute, from a reputation perspective, this is helpful.”
Foreign banks held 2.9 trillion yuan ($420 billion) of assets in China at the end of 2016, some 1.3 percent of the total and the lowest share since 2003, CBIRC data show. They earned 12.8 billion yuan in the nation last year, less than 1 percent of the profits at Chinese counterparts.
Yet even if they take full control of their China ventures, international companies will face multiple challenges. One of the biggest is competition from government-controlled rivals, who currently dominate the nation’s financial system and have longstanding relationships with state-owned companies that drive much of China’s economic activity. A recent government clampdown on financial leverage has also made the country’s regulatory environment trickier to navigate. Bloomberg
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