[ET Net News Agency, 16 November 2017] Life insurance and nonbank financial
institutions sectors have the most to gain from China's decision to ease restrictions on
foreign ownership of financial institutions, according to S&P Global Ratings.
This is because insurers, as well as fund managers and securities firms, will likely
attract more foreign capital and interest if China's pledged deregulation moves forward in
a timely fashion. Foreigners will have less scope or interest in competing with or
investing in China's major commercial banks, the credit rating agency said.
"We believe foreign investors will have significant interest in acquiring small and
midsize domestic Chinese financial firms or gaining control over existing joint ventures,"
said S&P Global Ratings analyst Eunice Tan.
"In our view, some may also seek access through establishing wholly owned subsidiaries."
she added.
While China has not yet released official rules for the liberalization, the State
Council has committed to relax or end limits on foreign participation in commercial
banking, distressed-asset management, securities trading and broking, and insurance. Up
until now, foreigners have been prohibited from owning majority stakes in financial sector
companies.
S&P expects that the shareholding restrictions on banks and distressed-asset managers
will be fully lifted, while thresholds for investment in securities firms, fund managers,
and insurers will be gradually phased out in the next few years.
The agency thinks it is in China's interest to strengthen resilience in its financial
system by opening the playing field wider to foreign competitors, which could usher in
global best practices in governance, risk management, and operations. That said, further
internationalization is unlikely to displace domestic leaders.
"Chinese financial institutions have a large lead and will continue to enjoy a
home-field advantage. Foreign entrants will still rely on domestic franchise for access to
customers and local knowledge. Moreover, domestic partners in existing joint ventures with
international firms may be unwilling to dilute their stakes," said Tan. (KL)