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China opens financial market

On Behalf of | May 8, 2018 | Uncategorized

The developing trade war between China and the US has investors across the world nervous, and rightly so. When the rules might change suddenly, what once looked like a prudent investment can suddenly become a sinkhole caught up in international wrangling.

One bright spot has been the opening up of financial markets to foreign investors. This will have long-term benefits for everyone doing business in China, as it will make banking much easier for foreign companies.

What has changed

Applications for increased investment in some part of the Chinese financial market have been fast-tracked for approval by the central bank. This is a very new development that is being watched carefully by many investors.

So far, the key players have been non-US financial banks. Investment stakes were previously limited to a small minority share for foreign banks. There has been a gradual loosening of the requirement for local partners, including allowing a majority ownership in financial services companies.

The largest firm to make a big investment in China so far is UBS, a Swiss firm that now has a majority share of its UBS Securities in China. They have been carefully cultivating their relationship with Chinese regulators for many years, which is always a wise way to do business in China.

What this means to investors

Foreign banks will make it easier to move investment money in and out of China, assuming it is not denominated in the local Renminbi currency. This is very good news for all investors from all over the world.

The preference so far is for non-US banks, however. It is still going to be advantageous to deal with China through UK and European based banks whenever possible.

Response to the trade war?

Many viewers believe that this is coming in response to the developing trade war with the US. The prohibition against foreign investment in financial services has indeed been a major contention in the developing dispute.

However, like most policy changes in China, this has been in the works for a long time. It is not a singular event but simply a continuation of a trend that has developed over many years.

The same rules apply

Doing business in China still requires the careful cultivation of relationships. Even as it opens up a little more all the time, no one should ever expect a fast buck from a Chinese investment. The rule is still building partnerships for the long haul, with carefully constructed contracts, is essential.