Beijing Rescinds Caps on Foreign Ownership of Chinese Banks

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The Chinese central government has removed restrictions on foreign investment in domestic banks and managers of non-performing debt, despite escalating trade tensions with the United States.

In an official statement released late Thursday the China Banking and Insurance Regulatory Commission (CBIRC) announced will now foreign investors will now receive treatment equal to that of domestic financial institutions.

Beijing had previously placed a 20% ownership restriction on single foreign institutions and a 25% cap on groups.

The “CBIRC Decision Concerning the Removal and Amendment of Certain Regulations” (中国银行保险监督管理委员会关于废止和修改部分规章的决定) “cancels the restriction on foreign capital equity holding percentages in Chinese invested banks and financial asset management companies, implements unanimous regulations for the equity and investment percentages of domestic and foreign capital, and continues to drive the convenience of foreign investment.”

The Decision cancels the “Foreign Financial Institution Share Investment in Chinese Financial Institution Administrative Measures” (境外金融机构投资入股中资金融机构管理办法), as well as removes the restrictions on foreign investment in Chinese banks and financial asset management companies as stipulated by the “CBRC Chinese Commercial Bank Administrative Approval Item Implementation Measures” (中国银监会中资商业银行行政许可事项实施办法), the “CBRC Rural Village Small and Medium-sized Financial Institution Administrative Approval Item Implementation Measures (中国银监会农村中小金融机构行政许可事项实施办法) and the “CBRC Non-bank Financial Institution Administrative Approval Item Implementation Measures.”

While Chinese policymakers have long stressed the need to further open up the country’s financial sector to foreign investment as part of ongoing economic reforms, observers previously expressed concerned that heightened trade tensions with the US could scupper these efforts.

“China is show they are keeping their promise and their regulators are interested in opening up, rather than closing down,” said Chen Long, Beijing-based economist at Gavekal Dragonomics to Bloomberg.

“Given the ongoing trade dispute, from a reputation perspective this is helpful.”

Foreign banks occupy a very modest niche in the Chinese market, with 2.9 trillion yuan in assets as of the end of 2016, equal to around 1.3% of the total for the lowest percentage since 2003.

The earnings of foreign banks in China were 12.8 billion yuan last year, or under 1% the figure for their Chinese peers.

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