China to further open up finance

Move prompted by concerns over slow progress

China is poised to allow access to more foreign financial institutions to help the development of the domestic financial sector, as top policymakers are reportedly mulling new measures to push ahead with reform and opening-up of the market, according to sources and experts on Monday.

The fresh efforts, led by the People's Bank of China (PBOC), the country's central bank, will likely focus on further expanding market access for foreign investors by reducing restrictions such as limits on ownership and opening more areas that are currently off-limits for foreign investors, the sources and experts said.

"[I think] it's mainly intended to make it more convenient for foreign investors to invest in stocks, bonds and other financial assets in the domestic market," a source at a major domestic bank, who is familiar with the opening of the bond market, told the Global Times on Monday.

The source, who spoke on condition of anonymity, said specific details of the new measures are not yet known, but noted that the question is about what the "level of openness" will be.

"As for the convenience issue, it involves many aspects and I can only see what I know… such as market entrance, capital management, administrative approval issues, taxes and regulation," the source said.

The PBC is reportedly leading an interagency effort to draft new policies and a timetable for further opening of the financial market, following a high-profile Financial Work Conference held in mid July and a notice from the State Council, China's cabinet, in mid-August.

Both stressed the need to further open the financial market, while the State Council notice specifically mentioned the opening of the banking, securities and insurance sectors.

Cheng Shi, head of ICBC International Research, said that specific areas where China might be headed in the long run include reducing restrictions for foreign financial institutions and expanding the degree of ownership foreign companies can have in domestic financial institutions.

Also, China is likely to expand the scope of the Qualified Domestic Institutional Investor (QDII), Renminbi Qualified Domestic Institutional Investor (RQDII) and Qualified Domestic Limited Partnership (QDLP) schemes, Cheng told the Global Times on Monday. The QDII, RQDII and QDLP schemes are mechanisms employed by China to regulate investment by domestic firms in overseas financial markets.

Actions not words

Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times that top policymakers are increasingly concerned that slow progress in reform and opening-up efforts might be hindering the development of China's financial market.

"It has become very clear in recent years that while Chinese companies are engaged in a massive overseas investment spree, domestic financial institutions have failed to keep up and provide necessary financial services for this trend," Dong noted.

He said that the domestic financial market is currently dominated by local firms that don't have any competition. "They seem to be doing fine domestically but they have no competitiveness in the global market."

Dong noted that it has increasingly become a consensus that this problem could "hinder China's overall economic strength, so I'm expecting some concrete actions this time around, not just some policy documents."

Regulators have already been stepping up their efforts in implementing policies such as allowing foreign asset management investment funds to set up wholly owned enterprises in China, said Li Yifei, country chair for China at Man Group, the world's largest publicly traded hedge fund, which recently gained one of the first licenses in China to develop onshore investment funds for Chinese investors.

"I think the opening process has never stopped; [the market] has always been open. The major breakthrough is that those policies have now been implemented," Li told the Global Times on Monday.

Li said that talks with Chinese regulators in the process of gaining the license were "very transparent and effective." She further noted that China's wealth management is a relatively new and burgeoning area and relevant laws and regulations are still under development. But officials "were very open to suggestions and points of view."

"The fact that four managers have secured personal financial management licenses has enabled foreign funds to have direct market access to local Chinese institutional and qualified investors," Li said