China Edges Forward With Financial Reform | The Corona Correction | Refinitiv
Welcome to the Corona Correction Series in association with Refinitiv, I'm your host Roger Hirst. China is currently attempting to reopen its economy after the Coronavirus lockdown, but with varying degrees of success. However over the last two years, China has also been trying to open up its financial markets in a piecemeal fashion. I spoke to Refinitiv's Chief Industry and Government Affairs Officer Sherry Madera, to see if Chinese financial reforms are still on track or if they have been derailed by the crisis. China has been on path to opening up for a number of years. It started back in 2017 and 2018, but that pace has been maintained over the course of the last couple of years. And this is remarkable in the face of the US-China trade war, and now the Coronavirus in Covid-19, giving ample opportunity for China to actually slow down that process. But what we're seeing now is a real adherence to the 11 measures which the Chinese state put out as a example of what was opening up and when in financial services, and those 11 measures were put out in 2019. Well, here we are at the beginning of April in 2020, and not only those 11 measures in terms of moving forward, but also the commitments that China has made through the US-China trade war pact. The Phase 1 deal that they signed earlier this year, have designated April to be one of the first juncture points to really show that companies, foreign companies, can enter the Chinese market for their financial services. And that looks set to continue. Just of last week we saw announcements from Goldman Sachs and Morgan Stanley of having obtained their licenses for the securities business. And this comes after a number of other global players that are being able to take up licenses in asset management, in insurance, in payments and in credit ratings. I think everyone's thinking about what are going to be the impacts on the economies, global economies of Covid-19, and China is no exception to that. But of course, as we have all seen in terms of the growing numbers of unfortunately deaths and those impacted in other places around the world, China's curve has definitely flattened. We're seeing sort of 30 percent, 50 percent, 70 percent, up to 100 percent of work being maintained now in various parts of China. And so, therefore, logically, the regulators there are turning their mind to thinking about what happens next. I think this is a case for a opportunity for China to adhere not only to its commitments for regulatory opening up in financial services, but possibly accelerating some of the licenses that are being granted to foreign institutions. I do want to put a caution in here that says that even if some of the top line licenses are being accelerated or increased over the course of the next few months, it is a long haul. However, I think that the path for financial services is quite special. The financial services market internationally has been banging on the door of China for decades, and this opening up began in 2017, some of the first announcements for the asset management industry within China were announced back in 2017. And we're now seeing, for example JP Morgan, announcing their license has been granted. And so this is not just a short term blip. This progress of opening up, this engagement by major financial institutions on their strategy and their plans for China has been years and decades in the making. And so, therefore, I think the geopolitics at the moment will be overshadowed by actually the needs, interests and demand by the marketplace wanting to access a forty five trillion dollar market onshore in China. All this opening up is very exciting. You know, the caps on foreign ownership going up, access to financial markets onshore in China that foreign players couldn't access previously. However, you know, the planning and the strategy is something that needs to be carefully balanced. We've already seen at Refinitiv the demand for data on the Chinese financial markets, be they from the stock exchanges to the commodity exchanges, etc, increasing up to 50 times over the course of the last three years. And this is from those that are looking from the U.S., the U.K. and other international players. So there's an obvious need from the international community to get data to make plans as to how they're going to get onshore and be successful. But I also think that those same companies are thinking about that balance, the opportunity for a higher control, more ownership. It has to be balanced with an onshore potential distribution strategy, which still includes partners, still includes an access to the market, to that talent, and that ecosystem in order to truly be successful. So I think that those foreign players are thinking about their strategy, using immense amounts of data to think about what it is that they need going forward, and what they need to onboard, especially for China, not only for themselves, but for their future clients, as well as how is it that they're going to play an effective role in a new market like China. The opening up of China's financial sector has already been a lengthy process because the authorities are trying to balance the liberalisation of its capital account against the risk of capital flight. Reforms that had been scheduled prior to the Coronavirus outbreak are still being implemented on time, and it looks like China will continue with these reforms. In the short term however, the stumbling block may be the limitations of foreign firms who'll be focused on the deepening crisis in their own domestic markets. We'll see you later with another update.