It has been a long time coming but with its feet to the fire as economic growth slows and a more belligerent US government squeezes it on trade, Beijing is biting the bullet of financial reform just that little bit harder.
The latest move – and there have been several such moves in recent months – came last Tuesday when China said that it would remove some of the obstacles stopping foreign banks and insurers from entering the Chinese market.
What this might mean in practice, given the propensity for approvals to get bogged down in bureaucratic processes, remains to be seen.
A year ago, China announced that it will let foreign lenders establish wholly-owned banks in China or form Sino-foreign joint venture banks and foreign bank branches at the same time.
Last week's amendment keeps the momentum going as foreign banks and insurers no longer need prior approval to conduct business in renminbi. In addition, overseas insurers will now be able to form wholly-owned subsidiaries in China, China's ruling State Council said. They will also no longer need to have been in business for more than 30 years.
“The regulation fulfilled the promises China made when entering the World Trade Organization [in 2001],” Liu Changchun, director of the ministry of justice, said at a press conference last week. “The regulatory amendment promotes the diversification of China's financial sector and stimulates the market.”
Credit rating agency Moody's, for one, welcomed the development, not least as it pertained to the insurance sector.
“The accelerated schedule to open China’s insurance market up to foreign insurers is credit positive for China’s insurance industry,” it said in a note issued on October 16. “While stronger foreign participation could raise market competition, the current regulatory focus on product design and interest rate risk will limit the risk of foreign insurers starting a destabilising price war."
“This amendment sends out a friendly signal for the trade talks between China and the US,” Wan Qian, China economist at Bloomberg, told FinanceAsia. “And it serves for the further opening up of China's capital market.”
Wan said that he expects further China reforms, having seen the removal of caps on foreign investment in mainland shares and bonds just last month, plans brought forward to remove limits on foreign ownership of Chinese fund management companies, and a further 11 key financial reforms in July.
“One reason is because of the pressure from the trade talks which have accelerated financial reformation. And also because it meets the expectation of the international community and Chinese policymakers on supply-side reform for the financial industry to improve financial service for the real economy,” she said.
And with Chinese economic growth slowing and high debt levels placing internal constraints on policymaking, the country needs to maintain a ready flow of capital.
The greater inclusion of more international players in the financial services industry (in particular in its most protected securities sector) would help China lure more foreign capital into the country, law firm Allen & Overy said in a press release on October 18.
China had a total of 41 foreign banks and 59 foreign insurance companies registered in the country at the end of June, according to the data issued by China's state council.
That could now grow sharply as a result of the new reforms, which in turn should push Chinese financial institutions into raising their game in order to meet international standards.
This has always been the Chinese government's agenda, Wan said.