China has recently introduced more than 50 new measures to open up its financial sector, including allowing foreign investors to hold up to 100-percent equity in its banks and insurance institutions.
At a press conference on January 25, Xiao Yuanqi, deputy head of the National Financial Regulatory Administration (NFRA), said the administration had scrapped restrictions on the proportion of shares held by foreign shareholders in Chinese banking and insurance institutions, including restrictions on foreign investment participation, acquisition and capital increase. This means that all sectors of the financial industry have been removed from China's negative list for foreign investment. The list defines industries in which foreign companies cannot invest and specifies restrictions or bans on certain types of foreign investment.
The five-yearly Central Financial Work Conference, which was held in late October 2023 and set the tone for China's financial development over the next few years, called for attracting more foreign financial institutions and long-term capital to establish and expand businesses in China. The more than 50 financial opening-up measures the NFRA has since adopted have substantially eased entry thresholds for foreign institutions. The potential business scope for foreign banking and insurance institutions is now exactly the same as for their Chinese counterparts.
Furthering the opening up of the financial sector is a key part of China's overall opening-up program. Over recent years, it has aligned with finance-related rules in high-standard international economic and trade agreements. It has also encouraged foreign financial institutions and long-term capital to conduct business in China and work with their Chinese counterparts in equity management and product development.
China's huge financial market has proved attractive to overseas investors. By the end of 2023, the total assets of China's banking institutions had hit 417.3 trillion yuan ($58.1 trillion) and those of insurance institutions 29.96 trillion yuan ($4.17 trillion).
By the end of 2023, foreign banks had opened 41 banks and 132 representative offices on the Chinese mainland, and there were 116 branches of foreign banks and banks based in Hong Kong, Macao and Taiwan. The total assets of the foreign-funded banks, branches and representative offices on the Chinese mainland had reached 3.86 trillion yuan ($537.6 billion). Overseas insurance institutions had established 67 outlets and 70 representative offices by the end of 2023, with their assets totaling 2.4 trillion yuan ($334.2 billion). As the financial industry becomes fully open, international players will be more deeply involved in China's economic and financial operations.
Good returns from the stable Chinese financial market are the major attraction for foreign capital. In 2023, the net profits of Chinese commercial banks rose 3.24 percent year on year while the non-performing loan ratio was only 1.62 percent. The Chinese banking sector has a robust risk compensation capability. According to the NFRA, currently, China has ample loan loss reserves, with its provision coverage ratio standing at 205.1 percent, a potent cushion against any financial crisis. The power of high loan loss reserves is evident from the fact that the real estate giant Evergrande Group's debt problems did not trigger a financial crisis in China in 2023. In contrast, the implosion of Lehman Brothers in the United States in 2008 sparked a global financial crisis.
Nevertheless, as more and more foreign-funded banks and insurance institutions move into China and expand their share in the Chinese market, risk control is still a priority for Chinese financial watchdogs. On the one hand, China needs to improve cross-border investment and financing facilitation to attract more international financial institutions and long-term capital. On the other hand, it must guard against systemic risks.
Copyedited by G.P. Wilson
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