China's financial services sector reforms | Capital Group Canada | Insights

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VIDEOS  |  MAY 2019

China's financial services sector reforms

Capital's China affairs director, Susan Dietz-Henderson, discusses China's financial services sector reforms designed to open up the market to foreign companies, reduce shadow banking and make banks more efficient.

 

Susan Dietz-Henderson: Another aspect, which we are seeing evidence of already in terms of opening up the financial services sector to foreign players in a much more aggressive way, is the financial reform of the financial sector. This is one of the great priorities for the Xi Jinping regime. You have in place now, those who are managing the financial services sector in the government, whether it’s Vice Premier Liu He, whether it’s the head of the banking and insurance regulator, Guo Shuqing, or whether it’s the new governor of The People’s Bank of China, Yi Gang.

All of these three are aligned in terms of the agenda they have in mind to clean up the financial sector, to close in on reducing the shadow banking, shadow debt problem, and making banks much more efficient and disciplined in how they’re lending to the local governments, to state and private sectors.

With financial sector reforms, there are a couple of aspects I’d like to highlight. One of them involves the increased market access to foreign players in the capital markets. Over the last five years, you’ve seen quite a few interesting developments, such as the Hong Kong-Shanghai Stock Connect program, the Shenzhen-Hong Kong Stock Connect Program, the Bond Connect, and just recently, the entry of the A-shares into the MSCI EM index. All of these are great benchmarks for China in terms of opening up, increasing the number of channels for foreign investors to actually invest in the capital markets in China.

Apart from that, there are also a few other reforms going on that enable foreign players to actually be in the market and expose themselves more and more to what the opportunities may be within. For example, ownership levels for foreign players in financial services entities in China have been increased from 49 percent to majority ownership at 51 percent, moving in three years’ time to a 100 percent ownership. A lot of foreign investment banks, other brokers, and other securities institutions are quite interested in participating in this initiative so as to be able to take advantage of this.

It’s very good for the Chinese as well, in that it opens up this sector to increased competition and a much more advanced and sophisticated market, which I think is one of the great priorities for the Securities Regulatory Commission. It helps to raise the level of quality of the players domestically and well as internationally. It changes over time, the nature of the investor in the market. Right now, the stock market is dominated by retail investors who have a relatively short-term time frame in mind when they’re investing in stocks in the market. With the advent of all of these developments over time, you may well see a change in the complexion of the investor in the market. More institutional players, longer-term holders of equities. Those sorts of things that make the capital markets move closer and closer to the international standards that the Chinese government desires. Part of the financial services reform is also aimed at making the financial sector, especially the banking sector, healthier, to reduce the local government debt problem, and to make the banks more disciplined in their lending practices and how they are investing the money better than they have before.

 

 

Susan Dietz-Henderson China Affairs Director

Susan Dietz-Henderson is the china affairs director at Capital Group. She has 31 years of diplomatic experience and has been with Capital Group for 11 years. Prior to joining Capital, Susan was the Australian Consul-General in Shanghai, an assistant secretary for the Australian Department of Foreign Affairs and Trade in Canberra, and had other diplomatic postings in China, the United States, Australia, and Papua New Guinea. She holds a diploma in applied economics from the University of Canberra, a bachelor’s degree in arts and Asian studies from Australian National University, and a diploma in applied linguistics and translation from Wycliffe College. Susan is based in Beijing.


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