JPMorgan Chase wants regulators to raise the cap on equity holdings by foreign investor, in the hope of expanding its wholly invested operations in China at some point.
Jing Ulrich, managing director and vice chair of Asia Pacific, JPMorgan Chase, said to Caixin that the venerable US bank mainly employs wholly-owned companies as opposed to joint ventures for its operations in other countries, in order to ensure that it retains controlling rights.
JPMorgan has its own wholly invested China-registered vehicle in the Shanghai financial district of Pudong, as well as a wholly owned asset management vehicle in the Shanghai Free Trade Zone.
Its operations are still constrained by restrictions on foreign investment in China’s financial sector, however, with Beijing limiting overseas financial institutions to a 20% equity stake in Chinese commercial banks, a 49% stake in securities firms or asset management companies, and a 50% stake in life insurance companies.
For this reason JPMorgan has a number of Chinese joint-venture enterprises in operation, including China International Fund Management Company Limited, which it established with Shanghai International Trust & Investment Corporation, and JP Morgan Futures Co., Ltd., which it established with Zhongshan Futures Brokerage Co., Ltd.
Given its preferred mode of operation in other foreign jurisdictions, Ulrich said JPMorgan would welcome further opening of China’s financial sector to foreign investment in future.
According to Ulrich the pace at which China lifts the ownership threshold for foreign invested vehicles will be determined by its schedule for financial sector reform.
Should the Chinese government raise the threshold for foreign ownership of Chinese banks to 30 or 35% from 25% at present, and the threshold for securities sector vehicles to over 50%, Ulrich believes this will benefit both overseas financial institutions and China, by facilitating the introduction of new products and experienced executives.
Ulrich is confident that the Chinese government will raise this threshold over the next several years, although expects the pace of change to be gradual.
Beijing has signalled greater opening of China’s economy and financial sector on multiple occasions since the start of 2017.
On 17 January the State Council issued the “Notice on Several Measures for Expanding Overseas Opening and Actively Using Foreign Capital” (关于扩大对外开放积极利用外资若干措施的通知), which made specific reference to greater opening to banking sector finance institutions, securities companies, investment management companies, futures, companies and insurers.
Shortly afterwards on 26 February Fang Xinghai, vice-chair of the China Securities Regulatory Commission, said that the agency would gradually raised the cap on foreign holdings of domestic securities and futures firms.
More recently on 19 October Guo Shuqing, head of the China Banking Regulatory Commission, pointed out at the 19th National Party Congress that the banking sector market share of foreign invested banks had fallen over the past five years, and that this was inimical to spurring competition and structural optimisation.
For this reason CBRC plans to expand the banking sector’s level of openness, and raise the thresholds for foreign ownership.