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China pledges to 'sharply' expand financial market opening as trade talks loom

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China pledges to 'sharply' expand financial market opening as trade talks loom
FILE PHOTO: Chinese Premier Li Keqiang speaks at a news conference following the closing session of the National People's Congress (NPC) at the Great Hall of the People in Beijing, China March 15, 2019. REUTERS/Jason Lee   -   Copyright  JASON LEE(Reuters)
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By Kevin Yao

BOAO, China (Reuters) – China will sharply expand market access for foreign banks and securities and insurance companies, especially in its financial services sector, Premier Li Keqiang said on Thursday.

The government will also work on more favourable policies for foreign investors to trade Chinese bonds, Li said in a speech at the annual Boao forum held on China’s southern island of Hainan.

“We are quickening the full opening of market access for foreign investors in banking, securities and insurance sectors,” he said.

Li’s remarks add to speculation that China may soon announce new rules that will allow foreign banks and insurance firms to increase their presence in China, as senior officials from China and the United States are due to meet in Beijing this week for the next round of trade negotiations.

China has pledged to further open its massive financial markets to foreign investors since last year amid a simmering trade war with the United States. Foreign businesses have long complained that liberalisation has been too narrow and on-the-ground implementation spotty.

Sources told Reuters on Wednesday that the United States and China have made progress in all areas under discussion in trade talks, with unprecedented movement on the touchy issue of forced technology transfers as China had put proposals on the table that went further than in the past, but sticking points remain.

Li said the business scope of foreign banks, as well as market access for credit rating companies, bank card settlements and non-bank card payments, will all be “expanded sharply”, with restrictions on the scope of foreign securities companies and insurance brokers expected to be removed.

“Such measures will be implemented this year in a relatively forceful way,” he said.

Li said China will also announce policies to help foreign investors to invest in and trade China’s bonds, just before Chinese bonds’ inclusion in the Bloomberg Barclays Global Aggregate Index, one of the most widely tracked in the world, scheduled to start on Monday.

China has eased foreign access to its $13 trillion bond market in recent years, especially through the Hong Kong-based Bond Connect scheme.

But global investors’ access to hedging instruments continues to be restrictive, and further clarification on tax collection policy is needed, ASIFMA, a financial industry lobby, noted in a report earlier last week.

Li added China will also issue “more favourable” rules for foreign acquisitions of Chinese listed firms. Beijing is drafting rules related to a new foreign investment law that was passed earlier this month. The rules are expected to be completed this year.

Beijing will revise and shorten a “negative” list of areas with restrictions on foreign investment, and will publish it before the end of June, Li said.


In the same speech, Li also sought to ease investors’ concerns over China’s cooling economy, saying Beijing has enough policy tools to fight a “hard battle”.

Li said China will cut “real interest rate levels” and lower financing costs for Chinese companies, but did not elaborate on which interest rate he was referring to. Li had made similar comments in a speech earlier this month.

Some analysts say shockingly weak industrial profit data on Wednesday have added urgency for more policy easing.

China’s industrial firms posted their worst slump in profits since late 2011 in the first two months of this year as slowing demand at home and abroad took a heavier toll on businesses.

Analysts at Capital Economics said they believe the benchmark lending rate will be cut in the weeks ahead, though sources have told Reuters such a move may be a last resort if the economy does not show signs of responding to previous support measures.

Other China watchers say policymakers may be waiting for March and first-quarter data in mid-April for a better picture of whether conditions are starting to stabilise.

Li said he could not rule out the possibility that there would be some fluctuations in the world’s second-largest economy this year, but added that earlier policy steps were gaining traction.

However, Chinese policymakers, including Li, have stressed that Beijing would not resort to “flood-like” stimulus that would unleash huge amounts of cheap credit, out of concern that could add to a mountain of debt.

The central bank has not cut benchmark rates since the last downturn in 2015, but it has been guiding financing costs lower since last year through various means including liquidity injections.

The central bank’s fourth-quarter monetary report showed the policy loosening appears to be having some effect, with a drop in average borrowing costs. But a private Beige Book Chinese business survey released on Wednesday showed some firms were reporting higher interest rates, especially those who had turned to shadow bank lending for funds.

China’s economic growth cooled to 6.6 percent last year, the slowest pace in nearly 30 years, and analysts polled by Reuters expect a further pullback to 6.3 percent in 2019.[ECILT/CN]

(Writing by Yawen Chen; Additional Reporting by Noah Sin in HONGKONG; Editing by Kim Coghill)

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