Eoin Treacy's view -
In the 2000s, China invited foreign banks into the domestic market, as it tried to manage down a legacy of bad loans. HSBC bought a share of Bank of Communications, Royal Bank of Scotland took a minority stake in Bank of China and Bank of America purchased a piece of China Construction Bank – helping them on their way to listing. Fast forward to 2017 and the bang is bigger. Based on an announcement Friday, limits on foreign ownership of Chinese banks and asset managers will be removed, and foreign firms will be able to take a 51% stake in securities and life insurance firms. But the aim is the same – helping clean up a financial mess, and prevent it from happening again.
Bloomberg Economics had flagged financial market opening as one of the possible deliverables from this week’s U.S. - China summit. Recognizing that the devil will be in the as-yet-unknown details, here’s our take on the implications:
There’s potential for a grand bargain here. China’s financial system will receive an influx of foreign capital and expertise.
That will help deal with the aftermath of a credit binge that has seen debt swell to 259% of GDP, and engineer efficiency gains that may help prevent a repeat occurrence. After paying the price of entry, foreign firms will get a piece of the Chinese market – the second largest and fastest growing in the world.
China has taken on a great deal of debt over the last couple of decades as the pace of infrastructure development has beaten all records. Quite what to do with it is a big question and there are three answers. However, perhaps the biggest takeaway is that the administration is taking substantive measures to tackle the problem.
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