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China to scrap foreign ownership limits in securities, futures and fund management firms next year in apparent trade-war concession

Daniel Ren ren.wei@scmp.com

China's securities watchdog officially has unveiled the time frame for abolishing foreign ownership restrictions on futures, securities and fund management companies, the latest sign that Beijing is accelerating efforts to open up its finance sector amid its gruelling trade war with the US.

The China Securities Regulatory Commission (CSRC) said on Friday that limits on foreign investors in mainland-based futures firms would be scrapped on January 1 next year.

Limits on mutual fund companies will be removed on April 1, while the caps on securities firms will be removed on December 1, 2020.

The deregulation paves the way for foreign institutions to set up wholly-owned units on the mainland to deal with futures, mutual fund management and securities businesses when the new rules take effect.

"Scrapping the ownership limits will give foreign players an opportunity to better tap the mainland securities markets," said Wang Feng, chairman of Shanghai-based financial services firm Ye Lang Capital. "But the market will still be dominated by China's home-grown companies for a few years."

Beijing has been under pressure to open up its financial and securities markets since the trade conflict between China and the US started early last year.

In April, 2018, Beijing announced it would lift the investment cap to allow foreign brokerages to have a majority stake in their mainland joint ventures with Chinese partners.

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Before the policy relaxation, holdings by foreign investors were capped at a maximum 49 per cent.

Since last December, UBS, JPMorgan and Nomura have received approvals from the regulator to set up majority-owned joint ventures, joining the fray of foreign players competing against some 160 domestic rivals.

The three big overseas names all have 51 per cent stakes in their mainland joint ventures.

The announcement on Friday means that the foreign institutions own their mainland businesses outright.

Beijing has been battered by fears that local securities and fund management companies would be easily edged out by giant foreign players if it granted them full access to the market.

The CSRC was reluctant to raise the foreign ownership limit in the past decade as it wanted to give domestic players more time to expand their business scale and strengthen their financial muscle.

So far, the 10 foreign-invested joint ventures in the securities sector account for only a small fraction of the mainland Chinese brokerage business.

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"It will take some time before foreign companies can grow big in China to fully compete with their Chinese rivals," said Ivan Li, an asset manager with hedge fund Loyal Wealth Management. "But competition will eventually benefit companies seeking to raise funds on the stock market and equity investors."

At present, mainland brokerages mainly rely on brokerage fees to make profits.

They have been encouraged by the regulator to diversify their revenue sources, into things like margin financing and wealth management, to enhance their competitiveness.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2019. South China Morning Post Publishers Ltd. All rights reserved.