US hails openings in China for finance firms

The Obama administration hailed pledges from China for greater access to the securities and insurance markets in the Strategic and Economic Dialogue.

China agreed to let foreign banks raise their stake in domestic-securities joint ventures to as much as 49 per cent, a US official said. Authorities will also consider curbing the power of state-owned enterprises by pushing them to raise dividends, while American companies will be given an easier path to offering car financing, according to the official.

US Treasury Secretary Tim Geithner, speaking on the final day of the cabinet-level talks in Beijing, said the two nations were building stronger economic ties.

Morgan Stanley and JPMorgan Chase are among the US banks that may gain more control over underwriting operations in China, the second-biggest market for share sales last year after the United States. Goldman Sachs and UBS are the only foreign firms to currently have management control over their local ventures.

“This is a strong gesture from China’s policymakers to further open its financial markets,” Hong Jinping, a Shenzhen-based analyst at China Merchants Securities said. The move “will give foreign investors a bigger say in their investment banking ventures”, Hong added.

China plans to let foreign investors establish joint ventures to trade commodity and financial futures, the US official said yesterday, speaking to reporters on condition of anonymity as the nations conducted talks in the capital.

Foreign banks’ ownership in the securities firms is currently capped at 33 per cent.

No deadline has been set, but Chinese regulators are expected to start work immediately on regulatory changes, according to the official.

The new rule “won’t change the landscape of China’s brokerage industry, which is dominated by over 100 local firms”, China Merchants’ Hong said. “To win a deal in China, you need political background and connections.”

Permitting the expansion of brokerage activities into the commodities and financial derivatives markets would mark a further step in the diversification of China’s capital markets, the US official said.

Reforms are ready to be rushed out over the next 12 months to boost two-way capital flows, drive diversification of business finance and accelerate corporate currency hedging, sources in close contact with the People’s Bank of China and the China Securities Regulatory Commission said late last month.

Beijing took a milestone step in opening up its currency regime last week when it widened the daily onshore trading band for the yuan to 1 per cent.

The move underlined its desire for reforms designed to ease speculative pressures in the economy and rebalance capital flows, while taking the country closer to its goal of a basically convertible yuan by 2015.

Chinese envoys made a “clear, sustained commitment” to more exchange-rate reform at this week’s talks, the US official said, but gave no details. The governments also agreed to start negotiations this summer on a “set of disciplines” for export credits, the official said.

Bloomberg, Reuters, Associated Press
South China Morning Post


Categories: Finance & Economy

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