China lifts caps on foreign ownership of financial institutions

November 10, 2017

BEIJING - China’s Vice Finance Minister, Zhu Guangyao, said today that foreign firms will be allowed to own stakes of up to 51% in securities brokers and life insurers. The government will also remove the cap of 20% on foreign ownership in Chinese banks, but no details have yet been provided yet.

Raymond Yeung, Chief Economist Greater China for ANZ Bank, said that with US President Donald Trump visiting China, the announcement is obviously a gesture to show China’s willingness to grant foreign investors greater access to the financial sector. It also reflected the spirit of ‘reform’, a key underlying theme of the 19th Communist Party Congress.

In a research note, he said that, directionally, relaxation of existing curbs wwould ease restrictions on investment inflows to China.

However, the magnitude of its impact would depend on the valuation of China’s financial institutions, and a more precise figure would require a careful assessment of their equity value. “Given the fast expansion in financial assets over the past few years, we believe that there will be a slew of optimistic headlines carrying positive emphasis on their value,” he said.

“Although most foreign investors will not ignore China’s market potential, we are still cautious about the actual impact of the new measure, especially on capital inflows.”

Foreign investors, he said, were aware of the fierce competition in China’s financial sector, and this would eventually define their investment appetite for Chinese assets. (ATI).