An article claimed that the opening of China of its financial markets to foreign investors and the relaxation of securities regulations would give overseas investment banks access to its trillions of dollars-worth capital market. However, an expert then claimed that investment bank revenues might take years in operations within China to become profitable in the long run.
According to Financial Times, global banks that operate in China had to endure a fee pool, limited ownership of onshore and overseas Chinese markets, and the uncertainties caused by the China-US trade war has caused the revenues investment banks to shrink. Equity and debt capital markets including mergers and acquisitions in China, these investment banks were said to have only generated revenues of 5.9 billion USD in 2019. The value was said to have been significantly lower compared to 2016's 7.8 billion USD.
It was also reported that overseas banks only acquired about four percent of those bank revenues amounting to 266 million USD in 2019. In 2016, they generated a total of 728 million USD in overseas bank revenues, a significant cut. Co-president of Goldman Sachs in Asia-Pacific then claimed that that the decline may have posed as an opportunity for overseas banks to improve their financial performance in China now that the country provides for an easement on its policies. However, he did warn that gaining access to that opportunity might be challenging for overseas investment banks.
Despite the declining industry, the report claimed that the world's top investment banks are forecasted to capitalize on the easing regulations of China on ownership of securities businesses in the country. Last week, Chinese officials have announced that since April, foreign banks operating in China's financial market may apply to take full stake ownership in any joint ventures they engage in.
Last December, China's central bank also announced a regulatory acceleration unlocking the full ownership of overseas investment banks of their branches within the 21 trillion USD capital markets of the country.
In a forum in Beijing this month, the vice-chair of China's securities regulator claimed that the 130 securities houses in China couldn't compete with the JPMorgan Chase, a foreign investment entity. However, days after the remark, the People's Bank of China then released a statement saying that Chinese financial institutions are more than capable of competing with their foreign challengers.
According to a research director at investment banking intelligence group Coalition Youssef Intabli, if overseas investment banks would take advantage of the regulatory easements in China, it would still take them a long time to become profitable because regulatory approval does not grant absolute access to financial services. He explained that overseas banks are small players in the Chinese domestic market and that there are already strong players in the industry. The competitions such as China International Capital Corporation and Citic Securities, both Chinese-owned entities, are also difficult to compete with.
