“The sheer size of China’s virtually untapped stock and bond market is irresistible to the world’s major financial institutions, especially as Beijing finally allows them to operate wholly owned mutual funds,” said Alex Capri, research fellow at the Heinrich Foundation.
China is the second largest stock and bond market in the world. but it largely untapped by foreigners Investors: International holdings account for about 5% of the $14 trillion stock market, and less than 4% of the $17 trillion domestic bond market, according to stock exchange and central bank data.
“China represents a significant growth opportunity for global financial services companies,” said Brendan Ahern, chief investment officer at KraneShares, an asset manager focused on Chinese stocks and bonds.
He added that “developed markets such as the United States and Europe are highly competitive and mature which has led to tariff pressure and diminished opportunities.” But “China’s market is relatively new by comparison.”
Expansion despite uncertainty
The big successes of these banks come nearly two decades after China joined the World Trade Organization and promised to open up its financial sector.
Enthusiasm from global banks and asset managers comes with risk, as uncertainty grows about the political and regulatory climate in China – as well as heightened tensions in Beijing with other countries.
“There is a feeling, broadly speaking, that Xi may temper some of his more aggressive rhetoric after this year’s 20th party congress, after he affirmed his political stance,” said Craig Singleton, an associate China fellow at the Foundation for Defense of Democracies. to prevailing expectations that Xi will use an important political gathering to cement a historic third term in office. “But the biggest danger is that it does the opposite.”
A number of Western companies have been drawn into controversy in China as geopolitical tensions simmer, particularly over allegations of human rights abuses in the country’s western region of Xinjiang.
pressure at home
Capri said China’s decision to allow more foreign companies into the country is “aimed at bolstering collateral damage in the international community,” adding that allowing Western companies to acquire larger stakes in China also gives Beijing “leverage” over Washington and Brussels. .
“This will increase tensions between the major financial firms in the United States and Europe, and their governments,” he said.
However, the potential for making money in China appears to outweigh any political problems.
“While China faces huge economic headwinds, it has defied bearish expectations in the past,” Singleton said, adding that Western banks continued to generate billions of dollars in revenue from China, even with recent regulatory actions.
“In other words, Western banks are playing a long game under the guise of portfolio diversification,” he added.
Even as Beijing tightens its grip on parts of its economy, there are reasons why the country is keen to open its financial industry to foreign investors.
China’s strict adherence to its “zero COVID” strategy and its slow self-isolation from much of the world have not been enough to derail the country. Last year, Fang Xinghai, vice chairman of the China Securities Regulatory Commission, He repeatedly spoke about the importance of opening up to the financial services industry and leveraging global capital and financial expertise.
“One of the main features of the Chinese Communist Party is its adaptability and pragmatism,” Singleton said.
He added that China recognizes that it needs to maintain access to foreign markets, technology and capital, which necessitates those ongoing partnerships with Western companies.
“In other words, the Chinese Communist Party must be integrated to survive, which means that it cannot completely avoid existing global norms or systems even as it tries to change them to suit Beijing’s needs,” Singleton said.