Financial opening-up on the fast track
By Zhao Xijun |
chinawatch.cn |
Updated: 2020-08-04 15:08
In recent years, measures have been rolled out to further open up the Chinese financial sector.
The People's Bank of China, China's central bank, has given a timetable for implementing 12 measures of financial opening-up. The Financial Stability Development Committee of the State Council has unveiled 11 measures; three of them concerning bonds, seven banks and insurance and one the securities market.
China Securities Regulatory Commission has given the green light to three weighty foreign insurance companies－Allianz, Arab Bank and BMCE Bank, to set up subsidiaries in Shanghai or operate in the Chinese market. The commission has also approved the establishment of four foreign-owned securities and fund management companies. For instance, American International Assurance has announced its plan to set up a wholly-owned subsidiary.
With the opening-up of the Chinese financial sector on the fast track, the market response has been quite positive and the foreign financial entities are entering the Chinese market at a much quicker pace.
Both the supply-side structural reform and higher quality of economic development call for a more open financial sector. Opening-up will bring in more financial agencies, services, products and competition, increase the supply of more diverse financial products and services, optimize resource allocation, and so better serve people and the real economy.
Second, a more open financial sector will improve the mechanisms, the business environment, the market eco-system and the strength of the Chinese financial sector. Institutionally speaking, breakthroughs have been made in removing some hurdles. No asset threshold for foreign investors who want to invest in Chinese financial entities, which allows more medium-and small-investing organizations to access the Chinese market. No discrimination against foreign investment, which puts both Chinese investors and foreign investors on a level playing ground.
Third, opening the markets of banking, insurance, securities, bond, foreign exchange brokerage, stocks and derivatives will expand the channels for overseas financing, boost the competitiveness of the Chinese financial sector, and win recognition from the international market.
Last but not least, a more open financial sector will elevate the renminbi to premier reserve currency status. Rules about QFII(qualified foreign institutional investor) and QDII (qualified domestic institutional investor) were unveiled in 2002, and regulations about RQFII(renminbi qualified foreign institutional investors) and RQDII(renminbi qualified domestic institutional investors) in 2011.
According to the Regulation on Qualified Foreign Institutional Investors Investing in China's Interbank Bond Market, QFIIs certified by China Securities Regulatory Commission, with the approved quotas from the Chinese Administration of Foreign Exchange, can submit an application to the PBoC for access to the inter-bank bond market. The regulation has expanded the investment options for QFIIs and regulated their investing behaviors. As a result, QFII and RQFII have developed faster, with more QFII investment and more RQFII pilot projects. On Sept 16,2019, the investment caps for QFII and RQFII were removed.
A more open capital market enables increasingly more foreign investors to access the Chinese market and the renminbi to be used more frequently in cross-border investment. In the long run, the renminbi will be more accepted for international financial transactions.
On Nov 30, 2015, the Executive Board of the International Monetary Fund included the renminbi in the special drawing right basket, and the weight of the Chinese currency in the basket is 10.9 percent. In June 2018, Morgan Stanley Capital International officially added China's A shares to its relevant global and regional indexes. Since last September, China's A shares have been included in FTSE Russell's flagship FTSE Global Equity Index Series benchmarks. In 2018, the increment of overseas investment in the Chinese bond market was around 60 billion yuan ($8.8 billion), and the total investment now exceeds 1.8 trillion yuan. This April will see the inclusion of Chinese bonds in the Bloomberg Barclays Global Aggregate Index.
Despite the progress made in opening up the financial sector, there is still room for improvement. To begin with, foreign investment only accounts for 2 percent of China's A shares and 2.9 percent in the Chinese bond market. The assets of foreign banks account for only 1.6 percent of the total assets of all commercial banks and foreign insurance company takes only 5.8 percent of all players in the insurance business.
Further opening-up in the financial market, especially in the capital market, will elevate the renminbi's role in international trading, if more institutional and individual foreign investors are attracted by greater opportunities in the Chinese market.
The author is co-director of China Capital Market Research Institute at Renmin University of China.
The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.
All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
(Translated by Hou Sheng)
In recent years, measures have been rolled out to further open up the Chinese financial sector.
The People's Bank of China, China's central bank, has given a timetable for implementing 12 measures of financial opening-up. The Financial Stability Development Committee of the State Council has unveiled 11 measures; three of them concerning bonds, seven banks and insurance and one the securities market.
China Securities Regulatory Commission has given the green light to three weighty foreign insurance companies－Allianz, Arab Bank and BMCE Bank, to set up subsidiaries in Shanghai or operate in the Chinese market. The commission has also approved the establishment of four foreign-owned securities and fund management companies. For instance, American International Assurance has announced its plan to set up a wholly-owned subsidiary.
With the opening-up of the Chinese financial sector on the fast track, the market response has been quite positive and the foreign financial entities are entering the Chinese market at a much quicker pace.
Both the supply-side structural reform and higher quality of economic development call for a more open financial sector. Opening-up will bring in more financial agencies, services, products and competition, increase the supply of more diverse financial products and services, optimize resource allocation, and so better serve people and the real economy.
Second, a more open financial sector will improve the mechanisms, the business environment, the market eco-system and the strength of the Chinese financial sector. Institutionally speaking, breakthroughs have been made in removing some hurdles. No asset threshold for foreign investors who want to invest in Chinese financial entities, which allows more medium-and small-investing organizations to access the Chinese market. No discrimination against foreign investment, which puts both Chinese investors and foreign investors on a level playing ground.
Third, opening the markets of banking, insurance, securities, bond, foreign exchange brokerage, stocks and derivatives will expand the channels for overseas financing, boost the competitiveness of the Chinese financial sector, and win recognition from the international market.
Last but not least, a more open financial sector will elevate the renminbi to premier reserve currency status. Rules about QFII(qualified foreign institutional investor) and QDII (qualified domestic institutional investor) were unveiled in 2002, and regulations about RQFII(renminbi qualified foreign institutional investors) and RQDII(renminbi qualified domestic institutional investors) in 2011.
According to the Regulation on Qualified Foreign Institutional Investors Investing in China's Interbank Bond Market, QFIIs certified by China Securities Regulatory Commission, with the approved quotas from the Chinese Administration of Foreign Exchange, can submit an application to the PBoC for access to the inter-bank bond market. The regulation has expanded the investment options for QFIIs and regulated their investing behaviors. As a result, QFII and RQFII have developed faster, with more QFII investment and more RQFII pilot projects. On Sept 16,2019, the investment caps for QFII and RQFII were removed.
A more open capital market enables increasingly more foreign investors to access the Chinese market and the renminbi to be used more frequently in cross-border investment. In the long run, the renminbi will be more accepted for international financial transactions.
On Nov 30, 2015, the Executive Board of the International Monetary Fund included the renminbi in the special drawing right basket, and the weight of the Chinese currency in the basket is 10.9 percent. In June 2018, Morgan Stanley Capital International officially added China's A shares to its relevant global and regional indexes. Since last September, China's A shares have been included in FTSE Russell's flagship FTSE Global Equity Index Series benchmarks. In 2018, the increment of overseas investment in the Chinese bond market was around 60 billion yuan ($8.8 billion), and the total investment now exceeds 1.8 trillion yuan. This April will see the inclusion of Chinese bonds in the Bloomberg Barclays Global Aggregate Index.
Despite the progress made in opening up the financial sector, there is still room for improvement. To begin with, foreign investment only accounts for 2 percent of China's A shares and 2.9 percent in the Chinese bond market. The assets of foreign banks account for only 1.6 percent of the total assets of all commercial banks and foreign insurance company takes only 5.8 percent of all players in the insurance business.
Further opening-up in the financial market, especially in the capital market, will elevate the renminbi's role in international trading, if more institutional and individual foreign investors are attracted by greater opportunities in the Chinese market.
The author is co-director of China Capital Market Research Institute at Renmin University of China.
The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.
All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.
(Translated by Hou Sheng)
