Photographer: Qilai Shen/Bloomberg

China's Top Bank Regulator Endorses Reform of Finance Industry

  • Country to ease ownership restrictions for foreign banks
  • HSBC in June approved to own majority of China securities JV

China’s top banking regulator reiterated the country’s commitment to reforming its finance industry, including easing ownership and business restrictions for foreign banks.

The market share of foreign banks in China is falling, which isn’t good for competition, China Banking Regulatory Commission Chairman Guo Shuqing said at the Communist Party’s twice-a-decade congress in Beijing. The country will give overseas banks “more room” in equity ownership and business scope, he said, without providing details.

Guo Shuqing

Photographer: Qilai Shen/Bloomberg

For foreign investors, the comments offer a welcome commitment to financial liberalization, at a time when Guo is overseeing a campaign to curtail risks from shadow banking and excessive leverage. JPMorgan Chase & Co.’s Chief Executive Officer Jamie Dimon earlier this year said that the bank is seeking structures that would eventually give it full control.

The CBRC unveiled plans in April to tighten its scrutiny of shareholders in banks, though it didn’t reveal who it would target. The country will deepen reforms of its banks, which will help prevent risks, said Guo, who was appointed to his post in late February and has been touted as central bank Governor Zhou Xiaochuan’s possible successor. China will increase the disposal of its bad loans, he said.

China sent a signal it plans to press ahead with opening up the $40 trillion financial sector when Zhou said in June that too much protection for domestic institutions weakens the industry and can lead to financial instability. 

HSBC’s Venture

About two weeks later, HSBC Holdings Plc became the first foreign bank to win permission for a majority-owned securities joint venture in China, raising optimism among other foreign investment banks that have struggled for years to challenge local rivals.

Regulations limiting them to minority stakes in their joint ventures have reduced their sway over key decisions and they’ve been largely excluded from lucrative businesses such as secondary-market trading in Chinese debt and equities, as well as from managing money for wealthy clients.

JPMorgan’s Dimon, who last year decided to exit a minority-owned Chinese investment-banking joint venture, said in June that the U.S. bank is patiently negotiating with Chinese regulators to fulfill a “longer-term dream” to eventually gain 100 percent control.

China’s central bank is drafting a package of reforms which would give foreign investors greater access to the nation’s financial services industry, people familiar with the matter told Bloomberg last month.

— With assistance by Dingmin Zhang

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