Page 384 - 2020 White Paper on the Business Environment in China
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0 White Paper on the Business Environment in China
Banking and Insurance earlier implementation of the newly announced
opening-up policies to accelerate the process of
Since China’s accession to WTO, the financial China’s financial market liberalization. It appears
sector has been subject to continuous liberalization that the initiatives launched so far are just part of
efforts. However, since heavy restrictions have China’s efforts to drive successful financial sector
been in place for many years, the market share of reforms and opening-up, and the whole process
foreign financial institutions in China is still lower is guided by ongoing improvement in response to
than that of major developed economies and a market needs (EY, Further Opens).
majority of developing countries. As mentioned
above, foreign banks control less than 2 percent of Meanwhile, foreign banks will now be able to
the total assets in the domestic industry, far below simultaneously set up branches in the country,
the 10 percent OECD average. Likewise, foreign- making it easier and quicker to put together joint-
funded insurance companies in China hold a far ventures. Foreign banks will also be able to lower
smaller share of China-based assets than the 20 their branch threshold of fixed-term time deposits
percent average seen in OECD countries. Services for Chinese customers from 1 million yuan
trade restrictiveness indices (STRIs) regularly (US$141,709) to 500,000 yuan. Revisions of the
issued by OECD can be used to measure the extent banking and insurance regulations are expected to
of market opening. The STRIs take values between attract more market participants in both sectors,
zero and one to score 45 countries using 5 stimulate market vitality, push Chinese and
identifiers, including restrictions on foreign entry, foreign-invested financial institutions to improve
restrictions on the movement of people, other their competitiveness and benefit China in regard
discriminatory measures, barriers to competition of learning from advanced international ideas and
and regulatory transparency. Zero represents experience. Another breakthrough is that foreign
a perfectly open market, and one represents a banks will no longer need to receive regulatory
market completely closed to foreign investors. In approval to conduct their business in yuan. They will
May 2019, the STRI of China’s commercial banks also be able to underwrite government bonds. In
was 0.409, improving slightly from 0.410 for 2014, the insurance sector, the State Council has radically
ranking 42nd among 45 countries, edging out rewritten the rule book. Previously, overseas firms
only Brazil, Indonesia and India. Comparison with had to have been in the insurance business for
other countries indicates that the decisive factor 30 years with a representative office in mainland
leading to high STRI on China’s banking industry is China for two years before being involved in the
the restrictions on foreign entry. Similarly, China’s sector. That has now been scrapped. China has
insurance industry STRI of 0.444 ranked 43rd due kept stepping up efforts in easing financial market
to the same factor. Nonetheless, by introducing access for foreign investors in recent years. Beijing
a series of initiatives for further opening up has been keen to attract more foreign capital to its
of China’s financial sector, the STRIs of China’s markets (Hu).
banking and insurance industries are expected to
improve significantly in the future. Many foreign- China, often criticized by US President Donald
funded banks and insurance companies complain Trump as a one-sided beneficiary of global
that obtaining a financial license is slow and often commerce, is pressing on with its pledge to welcome
subject to various restrictions. Furthermore, more overseas competition in the financial sector.
the process must be repeated in every region The sheer size of the industry makes it attractive
that issues licenses valid only in its geographic as winning even single-digit market shares would
jurisdiction. Although setting strict requirements offer sizable profits, but global firms need to
and capping the number of licenses to be issued navigate an often opaque regulatory environment
can help control industry risk to a certain extent, and take on state-controlled rivals that drive much
these hurdles also suppress market vitality and of China’s economic activity. Foreigners currently
hinder nationwide expansion by foreign financial held just 1.6 percent of the nation’s banking
institutions. China’s ongoing financial reform and assets and 5.8 percent of the insurance market in
opening-up has, however, attracted attention July 2019. Authorities have so far approved plans
from the international community, a tailwind for by UBS Group AG, Nomura Holdings Inc. and
384
Banking and Insurance earlier implementation of the newly announced
opening-up policies to accelerate the process of
Since China’s accession to WTO, the financial China’s financial market liberalization. It appears
sector has been subject to continuous liberalization that the initiatives launched so far are just part of
efforts. However, since heavy restrictions have China’s efforts to drive successful financial sector
been in place for many years, the market share of reforms and opening-up, and the whole process
foreign financial institutions in China is still lower is guided by ongoing improvement in response to
than that of major developed economies and a market needs (EY, Further Opens).
majority of developing countries. As mentioned
above, foreign banks control less than 2 percent of Meanwhile, foreign banks will now be able to
the total assets in the domestic industry, far below simultaneously set up branches in the country,
the 10 percent OECD average. Likewise, foreign- making it easier and quicker to put together joint-
funded insurance companies in China hold a far ventures. Foreign banks will also be able to lower
smaller share of China-based assets than the 20 their branch threshold of fixed-term time deposits
percent average seen in OECD countries. Services for Chinese customers from 1 million yuan
trade restrictiveness indices (STRIs) regularly (US$141,709) to 500,000 yuan. Revisions of the
issued by OECD can be used to measure the extent banking and insurance regulations are expected to
of market opening. The STRIs take values between attract more market participants in both sectors,
zero and one to score 45 countries using 5 stimulate market vitality, push Chinese and
identifiers, including restrictions on foreign entry, foreign-invested financial institutions to improve
restrictions on the movement of people, other their competitiveness and benefit China in regard
discriminatory measures, barriers to competition of learning from advanced international ideas and
and regulatory transparency. Zero represents experience. Another breakthrough is that foreign
a perfectly open market, and one represents a banks will no longer need to receive regulatory
market completely closed to foreign investors. In approval to conduct their business in yuan. They will
May 2019, the STRI of China’s commercial banks also be able to underwrite government bonds. In
was 0.409, improving slightly from 0.410 for 2014, the insurance sector, the State Council has radically
ranking 42nd among 45 countries, edging out rewritten the rule book. Previously, overseas firms
only Brazil, Indonesia and India. Comparison with had to have been in the insurance business for
other countries indicates that the decisive factor 30 years with a representative office in mainland
leading to high STRI on China’s banking industry is China for two years before being involved in the
the restrictions on foreign entry. Similarly, China’s sector. That has now been scrapped. China has
insurance industry STRI of 0.444 ranked 43rd due kept stepping up efforts in easing financial market
to the same factor. Nonetheless, by introducing access for foreign investors in recent years. Beijing
a series of initiatives for further opening up has been keen to attract more foreign capital to its
of China’s financial sector, the STRIs of China’s markets (Hu).
banking and insurance industries are expected to
improve significantly in the future. Many foreign- China, often criticized by US President Donald
funded banks and insurance companies complain Trump as a one-sided beneficiary of global
that obtaining a financial license is slow and often commerce, is pressing on with its pledge to welcome
subject to various restrictions. Furthermore, more overseas competition in the financial sector.
the process must be repeated in every region The sheer size of the industry makes it attractive
that issues licenses valid only in its geographic as winning even single-digit market shares would
jurisdiction. Although setting strict requirements offer sizable profits, but global firms need to
and capping the number of licenses to be issued navigate an often opaque regulatory environment
can help control industry risk to a certain extent, and take on state-controlled rivals that drive much
these hurdles also suppress market vitality and of China’s economic activity. Foreigners currently
hinder nationwide expansion by foreign financial held just 1.6 percent of the nation’s banking
institutions. China’s ongoing financial reform and assets and 5.8 percent of the insurance market in
opening-up has, however, attracted attention July 2019. Authorities have so far approved plans
from the international community, a tailwind for by UBS Group AG, Nomura Holdings Inc. and
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