The European Chamber's Statement on the Raising of the Ceiling on Foreign Equity Ownership of JVs in the Financial Sector Go back »

2017-11-10 | All chapters

Background

On 10th November 2017, Vice Minister of Finance Zhu Guangyao stated that: “China will lift the ceiling on foreign equity ownership in joint-venture firms involved in the futures, securities and funds markets to 51 percent [i.e. majority ownership]”,[1] which according to Reuters reports became effective immediately. 

The respective ceilings are being raised to 51 per cent from the previous 49 per cent. The last time they were raised—then from 33 per cent—was in May 2012.

Vice Minister Zhu further stated according to Reuters that “full foreign ownership of local firms involved in the futures, securities and funds markets will not be permitted until after three years, while full overseas ownership of insurance firms will be allowed only after five years.”[2]

Statement

The announced raising of the ceiling to 51 per cent on foreign equity ownership of joint-venture firms in various areas of the financial sector is an encouraging step towards the opening of China’s financial system overall. The European Chamber believes that full implementation of this announcement will indicate that regulation is moving in the right direction.

However, we have to acknowledge that this opening-up comes at a late stage at which it is difficult for foreign firms to capitalise on these changes as domestic Chinese firms have already built up strong positions in the industry.

We still have to wait and see how many foreign banks will be able to become majority shareholders in Sino-foreign joint ventures in the futures, securities and fund management industries or whether they intend to purchase a majority stake in a domestic bank. It is also not yet clear whether they will be asked to apply for additional licences or will face other restrictions to their operations. This situation may also apply to the insurance industry, for which similar changes—albeit on a longer timeline—were also announced.

Nonetheless, what is clear is that increased foreign participation in China’s capital markets is needed to increase the efficiency with which capital is allocated in the country’s economy. Many of China’s economic reforms cannot be achieved without this taking place. By the same token, the government’s ambition to build Shanghai into a global financial centre by 2020 is in many ways contingent upon the openness of China’s financial sector.



[1] China announces major steps to open its financial sector, Reuters / CNBC, 10th November 2017, https://www.cnbc.com/2017/11/09/china-announces-major-steps-to-open-its-financial-sector.html

[2] China Lifts Foreign Ownership Limits on Financial Firms, USNews / Reuters, 10th November 2017, <https://money.usnews.com/investing/news/articles/2017-11-10/china-will-lift-foreign-ownership-limits-on-financial-market-jvs-vice-finance-minister>

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