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China policy round-up: Foreign ownership cap formally scrapped for banks and asset managers, PBoC to back exporters, no truce after trade talk

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By Noah Sin
24 Aug 2018

Regulator removes ownership limit in Chinese banks for international lenders, China’s central bank vows support for businesses amid trade war escalation, Beijing and Washington fail to reach concrete agreements after two days of discussions.

Foreign banks can now acquire 100% of Chinese banks and asset managers, the China Banking and Insurance Regulatory Commission (CBIRC) said in an August 23 statement. The rule change was signed off by Guo Shuqing, head of the CBIRC, and came into force on August 17, according to a separate document published by the watchdog.

Previously, international institutions were subject to a 25% cap on ownership of domestic Chinese banks and asset management companies, and a single foreign financial institution cannot own more than 20% of a local bank or asset manager. The Chinese government promised last November to abolish the foreign ownership cap in the financial sector.

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Ji Zhihong, head of the People’s Bank of China’s Financial Markets Department, said the central bank would support financial institutions to lend to Chinese exporters affected by the trade war at an August 21 press conference.

“We will encourage financial institutions not to cut off loans to companies facing temporary difficulties,” he said. “If there are a market and future for their [exporters’] products, we will give banks reasonable support [to lend to these businesses].”

Also at the press conference, Li Bo, head of the monetary policy unit at the PBoC, reiterated the central bank’s position that China will not use its currency to fight the trade war.

“The RMB exchange rate is mainly decided by supply and demand in the market,” he said. “We often emphasise that we want markets to have a bigger impact in the formation of the exchange rate and that we will not engage in competitive devaluation, or use the RMB exchange rate as a tool to face off external disturbance, such as trade frictions.”

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China and the US whacked 25% tariffs on $16bn of each other’s goods at noon on Thursday. In an August 23 statement, the Chinese Ministry of Commerce (MofCom) said that it would file a complaint at the World Trade Organization against the US over the latest batch of tariffs.

The tariffs came in the middle of the talks between Chinese and US officials in Washington. However, the two sides failed to announce any concrete results or provide a timeline for the next meeting at the end of two days of talks, which started on Thursday morning, Eastern Time. 

“We concluded two days of discussions with counterparts from China and exchanged views on how to achieve fairness, balance, and reciprocity in the economic relationship,” Lindsay Walters, a spokeswoman at the White House, told media in an emailed statement.

In an August 24 statement, MofCom said the two sides engaged in a constructive and honest exchange of views, and that they will keep in touch with each other.

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The PBoC has extended a Rmb180bn ($26.1bn) swap line with the central bank of Malaysia, the Chinese central bank said in an August 20 statement. The renewal came as Mahathir Mohamad, the Malaysian prime minister, visited Beijing.

The two countries also reached an agreement on mutual recognition of accounting standards, Securities Commission Malaysia said on August 20. The agreement should simplify access to the Panda bond market for Malaysian corporates, which would have otherwise been required to provide PRC GAAP accounting documentation during the approval process. Only Hong Kong and Japan have reached similar agreements with China on accounting standards.

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The central banks of China and Japan will reactivate their local currency swap line, which expired in 2013, an August 21 media report claimed, quoting officials with direct knowledge of the matter. The size of the new swap line will be ¥3tr ($111.4bn), the report claimed.

The idea of reinstalling the swap line was raised in May when Li visited Japan. He also announced the allocation of Rmb200bn of renminbi qualified foreign institutional investor (RQFII) quotas on that trip.

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Liu Kun, China’s finance minister, will meet with Aso Taro, deputy prime minister and finance minister of Japan, on August 31, according to an August 24 announcement by the Chinese Ministry of Finance. The pair will exchange views on the global economy and explore opportunities for bilateral co-operation in financial services, said the statement.

By Noah Sin
24 Aug 2018