The opening of China’s financial sector has hit a speed bump, particularly amongst US banks, due to a changing business environment.
In 2019, China decided to accelerate the opening of its financial sector with the introduction of various new measures, including the elimination of foreign ownership limits. At the time, mainland China’s financial market had an estimated value of $45 trillion and numerous global banks lauded the opportunity to compete onshore in the world’s second largest economy.
The environment has changed in less than four years following the nation’s zero-Covid policy and a significant shift in US-China relations. Onshore expansion by global banks is expected to slow down for various reasons.
US banks are headlining the retreat, primarily due to a dented outlook. Goldman Sachs, for example, reportedly revised projections for its five-year plan in China after the business environment drastically changed with a reduction of more than one-tenth of its workforce in the mainland after doubling its headcount to over 600.
Morgan Stanley is opting against building an onshore brokerage unit, instead making a smaller investment of about $150 million in its futures and derivatives businesses. On Monday, the bank received regulatory approval to set up its futures unit in China.
It will be a longer journey than we would wish to build up scale and reputation to do business gradually,» said JPMorgan China chief executive Mark Leung in an interview on the bank’s plans in the mainland
Elsewhere, foreign bank expansion is being slowed down by structural changes outside of China.
The combination of UBS and Credit Suisse is expected to create some challenges due to existing exposure in China by both Swiss lenders. Under the current regulations of the China Securities Regulatory Commission, a company cannot be a majority shareholder in more than one securities firm nor hold stakes in over two asset management firms.
This would require the newly enlarged UBS to offload shares, creating further complications to an already complex integration.
Nonetheless, not all banks are hit by worsened sentiments or structural hurdles with HSBC being one of the most notable optimists, as part of its broader plans to pivot its global business to Asia.
The British lender currently owns 49 percent of its asset management joint venture, HSBC Jintrust Fund Management, and has reportedly reached an agreement earlier this month to purchase the remaining 51 percent.
The bank is also rapidly growing its wealth business onshore with the rollout of various new product capabilities, such as an upgraded legacy planning offering in April. According to chief financial officer Georges Elhedery, HSBC is on track to hire around 2,000 private wealth managers in China’s insurance sector over the next two years, after adding 1,000 in 2022.