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China Regulator Lifts Ownership Limits for Foreign Companies

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Moving ahead with the target to provide China with an improved banking and insurance system, the China Banking and Insurance Regulatory Commission has removed the total asset requirement for foreign banks to set up institutions in the country, beginning 2020. The move came a year earlier than expected.

Specifically, foreign institutions will now be able to set up wholly owned branches in China without a local partner holding the majority stake. Foreign companies dealing in futures contracts received permission to set up business in the country with no limits on the amount of capital held from Jan 1, 2020.

The regulator also granted permission to foreign companies to hold controlling stakes in life insurers, securities and mutual fund management ventures. Notably, fund management firms will be able to put forth applications from Apr 1 while brokers will be able to do so from Dec 1, 2020.

Foreign Banks Aspiring for Majority Stake

Major brokerage and investment banking services providers such as BlackRock (BLK - Free Report) and Schroders plc (SHNWF - Free Report) have indicated intentions to apply for 100% owned mutual fund licenses. JPMorgan (JPM - Free Report) , which already has a 49% stake in a mutual fund joint venture, reached an agreement to buy the remaining stake in August 2019. Also, UBS Group (UBS - Free Report) was permitted to take majority control of its local securities joint venture in December 2018.

Another major regional bank, Citigroup (C - Free Report) is planning to establish a majority-owned securities joint venture. Morgan Stanley (MS - Free Report) , Goldman Sachs (GS - Free Report) and Credit Suisse have applied for 51% stake in local joint ventures in mid-2019.

Development in U.S.-China Trade War

The 17-month long, heightened trade negotiations between the President of the United States and his Chinese counterpart in an effort to sign a deal, have eased slightly. China is expected to sign the phase one deal on Jan 15.

The U.S.-China trade war-related tensions have been adversely impacting the economies of both countries for the past few months. However, further clarity on the U.S.-China trade deal will help provide ample boost to the financials.

Bottom Line

The removal of restriction on foreign banks from conducting business in China’s $45 trillion financial industry will boost their revenues considerably. Moreover, the banks will be able to explore opportunities in China as well taking advantage of the economy.

UBS Group, Goldman, Morgan Stanley and Citigroup currently carry a Zacks Rank #3 (Hold), while JPMorgan, BlackRock and Schroders hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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