China has opened a bit wider the door to foreign investments in its massive and formerly closed financial industry.
In a surprise announcement Wednesday apparently directed at the United States, the state bodies responsible for the financial sector announced overseas financial institutions can soon establish insurance companies in the mainland -- and become shareholders of these new firms.
The new reform moves include allowing foreign lenders to establish wholly-owned banks in China. Also, China will do away with the need for foreign lenders to obtain its prior approval before conducting businesses in the yuan or renminbi.
The steps were announced by the State Council, which is China's chief administrative authority, and the China Banking and Insurance Regulatory Commission (CBIRC). The latter is a regulatory agency authorized by the State Council to supervise the establishment of and to regulate business activities of banking and insurance institutions.
These steps follow new on Oct. 11 the China Securities Regulatory Commission (CSRC) has revealed the much anticipated time frame for removing foreign ownership limits affecting futures, mutual fund and securities companies in the financial industry. The new policy will be implemented on January 2020, according to CNBC.
Taken together, these surprising actions aimed at further opening-up China's financial sector to much needed foreign investments are being seen as intending to boost flagging foreign confidence in China.
"This is another step towards increasing foreign-invested institutions' long-term confidence in China, and enables these firms to see an even clearer direction," said Charles Lin, Managing Director, and CEO Asia for Vanguard Investments Hong Kong Ltd.
"China's financial industry and capital markets are full of vitality and opportunities. In particular, the demand of individual investors for wealth management is constantly increasing."
Analysts, however, warn it will be years before foreign financial firms can actually benefit from China's liberalizing its insurance industry and parts of the financial industry. They point out there are licenses and other procedures that can prolong the process in this industry overwhelmingly dominated by local players.
"From a broad perspective, China is showing its welcoming gestures towards foreign financial institutions, intending to leverage them to expedite reform in the Chinese market such as business management, development strategies, hence becoming more competitive in a global context," according to Emilie Wu, analyst at Chinese market intelligence firm, Red Pulse.
