China to grant overseas investors greater access to its financial market
On November 10, authorities unveiled new round of financial market liberalization rules to invigorate the finance sector and curb potential financial risks. Although authorities are still formalizing some aspects of the announcement, it is clear the reform will be a major boon for the financial market.
The government will allow foreign firms to hold a majority stake – up to 51 percent – of any joint ventures in the securities, fund management, and futures industries. This is up from the current cap of 49 percent. This cap will be totally removed after three years of implementation.
The authorities will raise the ownership cap for life insurance companies from 50 percent to 51 percent in three years, and then remove them totally in five years. Notably, the current 25 percent cap on foreign bank ownership in Chinese banks will also be scrapped, granting foreign banks equal treatment as domestic investors.
Though the detailed timeline and roadmap are yet to be set, the announcement is a major step toward the long-awaited opening of China’s financial system. Unlike the nearly saturated banking sector that is dominated by government-endorsed players, the securities, insurance, and fund-management industries are seen to have significant room for growth.
By 2019, China is predicted to become the second-largest asset management market, with assets under management growing to US$17 trillion from the current US 2.8 trillion. More overseas financial firms can be expected to increase their presence in China, making China’s financial markets more competitive.
Shanghai to launch free trade port
Authorities have announced a plan to develop a free trade port in Shanghai as the city attempts to keep itself at the forefront of economic reforms after launching the free trade zone in 2013. According to media reports, the plan will focus on the “free flow of goods, capital, and talent”.
More specifically, the free trade port will involve eased capital controls, scrapped customs duties, minimum clearance procedures, and easier application of foreigners’ work permits, as compared to the Shanghai Free Trade Zone. The port area will also improve the management of foreign exchange, adjust tax incentives, improve the account system, and speed up the development of offshore RMB businesses, to mitigate the long lasting constraint in capital account.
The concept of “inside the territory while outside the customs” is of great importance in the plan, which is used to emulate the freest ports in the world, such as Hong Kong and Singapore. Companies within the port can not only import fined products, but also engage in the full supply chain configuration, including material purchasing, manufacturing, processing and marketing.
As a result, enterprises engaging in processing, transshipment and trading within the port area can share the bonuses. Industries including port service, logistics, warehouses and commercial services will probably get the most from the proposed free trade port.
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