China is still the ultimate price that western banks can’t resist – Community News
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China is still the ultimate price that western banks can’t resist

late last month, HSBC (HBCYF) received approval from Chinese regulators to take full control of the life insurance joint venture, which was established in 2009 in equal partnership with a Chinese company, under rules that were rolled back in 2020. The bank said the move underlined its value “dedication to expanding business in China.”
The British banking giant is also seeking a larger stake in HSBC Qianhai, its joint venture in China, according to Reuters, citing an unnamed source. HSBC declined to comment on CNN Business.

“The sheer size of China’s virtually untapped stock and bond market is irresistible to the world’s major financial institutions, especially since Beijing is finally allowing them to operate entire mutual funds,” said Alex Capri, a research fellow at the Hinrich Foundation.

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China is the second largest market for stocks and bonds in the world. But it is largely untapped by foreign Investors: International holdings account for about 5% of the $14 trillion stock market, and less than 4% of the $17 trillion onshore bond market, according to data from the exchange and central bank.

That started to change last year, after black rock (BLK) – the world’s largest asset manager – became the first global company to receive approval for an all-Chinese mutual fund company in June. Two months later, BlackRock launched its first mutual fund in the country, quickly raising $1 billion from more than 111,000 investors.
Then, in August, JP Morgan (JPM) became the first US bank to take full ownership of its securities unit. CEO Jamie Dimon said at the time that China represents “one of the greatest opportunities in the world” for the company.
In October, Goldman Sachs (GS), was given the green light to fully take over his securities business. And Morgan Stanley (MSPR) followed with its own win in December, when its Chinese partner said the US bank was planning to increase its stake in a brokerage to 94%.
More to come. Earlier this week, China’s securities regulator said it had filed an application from BNP Paribas (BNPQF) to establish a securities firm, bringing the firm one step closer to broadening its presence in the country.

“China represents a significant growth opportunity for global financial services firms,” said Brendan Ahern, chief investment officer of KraneShares, an asset manager focused on Chinese stocks and bonds.

“Developed markets such as the United States and Europe are highly competitive and mature, which has resulted in fee compression and diminishing opportunities,” he added. But “the Chinese markets are relatively young by comparison.”

Expansion despite uncertainty

The significant breakthrough for these banks comes about two decades after China joined the World Trade Organization and pledged to open up its financial sector.

While progress has been slow for a while, in 2019 the country announced that it would close the following year, shortly after Chinese President Xi Jinping and former US President Donald Trump have agreed to resume trade talks.

The enthusiasm of global banks and asset managers also carries risks, as there is growing uncertainty about China’s political and regulatory environment, as well as Beijing’s mounting tensions with other countries.

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In late 2020, Beijing launched unprecedented regulatory pressure on private companies, fearing that such companies had become too powerful. The ensuing crackdown has extended to major Chinese financial players such as Ant Group, which has been forced to review its operations and adhere to strict banking rules.

“There is a general sense that after this year’s 20th party congress, Xi will moderate some of his more aggressive rhetoric after securing his political position,” said Craig Singleton, a deputy China fellow at the Foundation for the Defense of Democracies, citing widespread expectation that Xi will use a key political meeting to cement a historic third term in office. “The biggest risk, however, is that he will do the opposite.”

A number of Western companies have been embroiled in controversy in China as geopolitical tensions worsen, especially over allegations of human rights abuses in the country’s western region of Xinjiang.

The past weeks, walmart (WMT) and Intel (INTC) met with public reaction in China over allegations that they were trying to import products from Xinjiang. And last year, H&M, Nike (NKE) Adidas (TO ADD) and other western retailers were threatened with boycotts in China for their stance against the alleged use of forced labor to produce cotton in Xinjiang.

Busy at home

Western companies also have to deal with pressure at home. Billionaire investor George Soros called black rock (BLK)China’s investment a “tragic mistake” that could lose money for its customers and jeopardize US national security. Some US politicians also called on Wall Street to stop “enabling communist China” and take a tougher stance on Beijing.
The tightness has persisted in recent weeks. Last month, US President Joe Biden signed the Uyghur Forced Labor Prevention Act, a law banning imports from Xinjiang over concerns over forced labor. It sent a clear signal that his administration and Congress want to increase pressure on Beijing.
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China’s decision to let more foreign companies into the country is “aimed at increasing collateral damage in the international community,” Capri said, adding that allowing Western companies to take larger stakes in China would also increase Beijing. gives a “leverage effect” on Washington and Brussels .

“This will increase tensions between the major financial firms in the US and Europe, and their own governments,” he said.

However, the potential to make money in China seems to outweigh any political concerns.

“While China faces massive economic headwinds, the country has defied bearish forecasts in the past,” Singleton said, adding that Western banks have continued to generate billions of dollars in revenue from China, even with the recent regulatory crackdown.

“In other words, Western banks are playing the long game under the guise of portfolio diversification,” he added.

China’s motive

And even as Beijing tightens its grip on parts of its economy, there are reasons why the country is eager to open up its financial sector to foreign investors.

The government wants to leverage global expertise to build a strong and diverse financial services industry, which it needs to face the looming demographic crisis. A rapidly aging population and a shrinking workforce have putting a heavy burden on the country’s inadequate pension system, and putting enormous pressure on the government to provide adequate financial resources for the elderly.
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China’s strict adherence to its “zero Covid” strategy and slow, self-isolation of much of the world has also not been enough to throw the country off course. Last year, Fang Xinghai, vice chairman of the China Securities Regulatory Commission, said, spoke repeatedly about the importance of opening up financial services and leveraging global capital and financial expertise.

“One of the most important characteristics of the Chinese Communist Party is its adaptability and its pragmatism,” Singleton said.

He added that China understands that it must maintain access to foreign markets, technology and capital, necessitating continued partnerships with Western companies.

“In other words, the CCP must integrate to survive, meaning it cannot completely shun existing global standards or systems, even as it tries to adapt them to Beijing’s needs,” Singleton said.