Banking, insurance, brokerage sectors to attract more international investors

Financial regulators recently approved several offshore financial institutions to set up new business entities in China as the country continues to open up its financial sector to foreign investors.

The China Securities Regulatory Commission gave Singapore-based DBS Group the green light on Aug 27 to set up DBS Securities (China) Ltd, a joint-venture securities company in which DBS Group will have a controlling stake. With the aim of providing onshore products and services for domestic and foreign clients, DBS Securities will engage in activities including brokerage services, securities investment consulting, securities underwriting and sponsorship, as well as proprietary trading.

On the same day, the CSRC granted a domestic fund custodian license to Citibank (China) Co Ltd, which became the first United States bank and the first of the top five global custodians to win such a license. The license will enable Citi to provide custodial services for mutual funds and private funds domiciled in China after passing CSRC's on-site inspection this year.

"The further opening-up of China's financial market is beneficial to foreign banks' development in the country by attracting more overseas financial institutions. Those foreign financial institutions have worked with global banks like Citi in other markets, so they prefer working with global banks after they enter the China market as they are familiar with each other's style, way of doing things and level of service," said Vicky Tsai, head of securities services at Citi China.

Foreign financial institutions value Citi's adoption of globally unified standards, high level of service and emphasis on compliance, which is embedded in its risk management system.

"China aims to become a top-level global financial market. It is helpful to attract foreign institutions to the country to help build the financial infrastructure," Tsai said.

"As China's financial market becomes increasingly mature, the ratio of individual investors to total investors will keep falling, whereas the number of institutional investors will keep rising. As a result, the supervision system will change accordingly, and financial regulators will make adjustments to shift their focus more on managing institutional investors," she said.

Last month, the CSRC also approved BlackRock Financial Management Inc, a New York-based investment management firm, to establish a wholly-owned mutual fund management company in China. The new Shanghai-based company has a registered capital of 300 million yuan ($44 million). Its business scope includes mutual fund management, fund sales and handling private assets.

The announcement came after BlackRock, Singapore state investor Temasek Holdings and China Construction Bank Corp received approval from the China Banking and Insurance Regulatory Commission to set up a foreign-controlled wealth management joint venture in China.

"China has deepened and widened the opening-up of its financial sector by issuing licenses to foreign investors, allowing them to establish wholly owned companies or take a controlling interest in joint ventures in major business segments of the financial sector. It means that foreign investors can make better use of what they put great emphasis on — their management capabilities and management authority," said John Qu, senior partner at McKinsey, at the 2020 Global Wealth Management Forum in Beijing.

"Foreign investors put more value on structural changes in the China market rather than the size and growth potential of the market. In addition to the appeal of China's capital markets, the launch of a registration-based initial public offering system and new rules on asset management also boosted their confidence in achieving success in China's capital markets," Qu said.

The CBIRC, China's top banking and insurance regulator, has announced 34 measures to further open up the banking and insurance sectors since 2018. The revisions of relevant laws and regulations are basically completed.

"Over the past two years, the CBIRC has approved foreign banks and insurers to set up nearly 100 institutions of various types in China. This shows that foreign financial institutions and the international community are full of confidence in the development of China's financial sector," said Zhou Liang, vice-chairman of the CBIRC, at the China International Finance Annual Forum 2020 on Sept 6.

"We will keep holding on to the principles of market-oriented operation, institutionalization and internationalization, create an open and transparent policy environment to maintain a level playing field for foreign and domestic investors and further develop detailed implementation plans for the measures that have already been launched," Zhou said.

Apart from introducing more foreign financial institutions with special features and a high level of professionalism to conduct business in China, the CBIRC will also encourage foreign and domestic institutions to deepen their cooperation in products, business, management and talent cultivation, and improve financial regulatory and governance capacity while the country further opens up its financial sector.