China’s top banking regulator said yesterday that the country will further open up its banking system to foreign investors, who have failed to make inroads into the highly regulated sector and seen their market share decline.
“We will give foreign banks more space in the form of their establishment, shareholder qualifications, the percentage of their shareholding and their scope of business,” said Guo Shuqing, chairman of the China Banking Regulatory Commission (CBRC) at a news conference during the 19th Party Congress.
The market share of foreign banks in China has decreased to 1.2% now from 2.4% 10 years ago, Guo said.
“This is not beneficial for promoting competition and structure optimisation,” he said.
Guo’s comments are the latest indication that the world’s second-biggest economy may lower barriers to overseas participation in its financial services sector, which has frustrated some foreign firms.
The regulator’s comment comes as Beijing faces mounting pressure from Western governments and business lobbies to remove investment restrictions and onerous regulations that prevent foreign firms from operating in its markets.
China has responded by renewing earlier promises to open its markets further.
Making moves to open markets now may be a case of “too little, too late”, said Keith Pogson, EY’s global assurance leader for banking and capital markets.
“Many foreigners have lost interest in participating in the Chinese market directly,” said Pogson, following years of market curbs exacerbated by the competitive threat of China’s biggest state-owned banks and rising non-bank financial sector.
There were 39 wholly-owned foreign banking institutions operating in China at the end of last year, according to CBRC statistics.
In July, the People’s Bank of China published rules allowing foreign rating agencies to establish wholly-owned businesses on the mainland to assess the credit risks of domestic bonds.
Global credit ratings agencies currently can only hold minority stakes in joint ventures and are not allowed to issue ratings for local bonds.
The government last year also said it would further liberalize its securities and insurance sectors.
Overseas banks are permitted to operate locally-registered branches in China, and are restricted to taking a maximum 20% stake in domestic banks.
In securities and fund management businesses, foreign ownership is capped at 49%.
Yesterday, PBoC’s Guo also said China will strengthen regulatory management for the disposal of non-performing loans (NPLs) and continue to contain financial risk while curbing any rise in hidden debt.
Chinese banks have sold off, written off and reclassified a total of 979.9bn yuan in NPLs in the first three quarters of this year, according to CBRC data.
Guo said that financial regulators would continue to crack down on business irregularities to prevent financial risks.
China’s regulators will also guard against cross-market financial risks while further deepening reforms, he said.
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