Beijing Launches 11 Measures for Further Opening of China’s Financial Sector, Interbank Bond Market the Focus

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The Chinese central government has unveiled a slew of new measures for further opening of the country’s financial sector.

The “Relevant Measures Concerning Further Expansion of External Opening of the Financial Sector” (关于进一步扩大金融业对外开放的有关举措) released by the State Council’s Financial Stability and Development Committee on 20 July include:

  1. Allowing foreign-invested institutions who engage in credit ratings operations in China to rate all types of bonds on the interbank bond market and exchange-traded bond market;
  2. Encouraging offshore financial institutions to participate in the establishment of and invest in the shares of the wealth management subsidiaries of commercial banks;
  3. Allowing offshore asset management institutions and the subsidiaries of Chinese banks or insurers to jointly invest in and establish wealth management companies that are share-controlled by the foreign party;
  4. Allowing offshore financial institutions to invest in the establishment and equity of aged care wealth fund companies;
  5. Supporting foreign investors to fully invest in the establishment of or obtain shares in currency brokerage companies;
  6. The transitional period for the increase in the foreign equity ownership ceiling for personal insurance companies from 51% to 100% has been brought forward from 2021 to 2020;
  7. Cancellation of the requirement that domestic insurance companies collectively own no less than 75% of the equity in insurance asset management companies, and allowing foreign investors to hold more than 25%;
  8. Loosening the entrance requirement for foreign-invested insurance companies, cancellation of the requirement of a 30 year business term;
  9. The time for the cancellation of the foreign equity ownership restriction for securities companies, fund management companies and futures companies has been brought forward from 2021 to 2020;
  10. Allowing foreign invested institutions to obtain A-category underwriting licenses for the interbank bond market;
  11. Further facilitating investment in the interbank bond market by offshore institutional investors.

The People’s Bank of China (PBOC) subsequently provided official comments on several of the measures unveiled by the State Council.

With regard to the first measure, PBOC said that it would work with the China Securities Regulatory Commission (CSRC) to “further drive opening of the ratings sector, continually expand the business scope for foreign-invested ratings agencies, [and] allow more foreign-invested ratings agencies that satisfy conditions to undertake all categories of ratings operations on the interbank bond market and the exchange-traded bond market.”

A PBOC spokesman pointed out that on 28 January 2019 S&P (China) obtained approval to undertake credit ratings operations on China’s interbank bond market, including financial institution bonds, non-financial enterprise debt financing instruments, structured products and the bonds of offshore entities.

With regard to allowing foreign-invested institutions to obtain A-category underwriting licenses for the interbank bond market, PBOC said the move would help to “further enrich methods for foreign-invested institutions to service the real economy [and] bring more overseas investment demand to domestic enterprises issuing bonds for financing.”

According to PBOC there are already 6 foreign-invested banks in China that have obtained B-category underwriting qualifications for debt financing by non-financial enterprises.

With regard to further facilitating investment in the interbank bond market by offshore institutional investors, a PBOC spokesman said that at present foreign investors are able to directly invest in the market via multiple means including qualified foreign institutional investors/ renminbi qualified institutional investors and the Bond Connect initiative, but the separate nature of these channels made it difficult to some foreign investors to transfer bonds and funds amongst themselves.

In order to further facilitate investment China will need to integrate the requirements of different opening policies and connect bond and fund accounts, prompting PBOC and the State Administration of Foreign Exchange (SAFE) to jointly draft the “Notice Concerning Problems in Relation to Further Facilitating Offshore Institutional Investors Investing in the Interbank Bond Market (关于进一步便利境外机构投资者投资银行间债券市场有关问题的通知).

The Notice is scheduled for imminent release following the solicitation of online opinions in May 2019.

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