After the global financial crisis, Beijing led the world out of recession, courtesy of a vast stimulus plan that led to a ballooning of national debt, but also funded a host of projects deemed vital to its long-term interests.
This gave China belief it could build its way to success. To an extent, it did, carpeting the country with high-speed rail – though its plans to remodel global infrastructure, via the Belt and Road Initiative (BRI), have been somewhat derailed of late.
But the big factor at work at the start of the 2020s is not China’s economy but its suddenly open and welcoming financial and capital markets.
For the past two decades, Beijing has successfully stalled or stymied efforts by global financial institutions to expand in or break into its market.
For years, fears China would never quite open up persisted. In 2020, it crossed this particular Rubicon
Then it abruptly changed its tune. In January 2020, just as the world was becoming aware of a dangerous new pathogen, mainland regulators agreed to let foreign banks apply to own their onshore securities operations outright, as of April 1.
External observers watched on with a gimlet eye.
Most assumed Beijing would soft-pedal the process, issuing a few new or expanded licences, but, as always, promising far more than it was willing to deliver.
They couldn’t have been more wrong.
In March 2020, JPMorgan Securities (China), the US bank’s majority-owned mainland brokerage, opened for business. Goldman Sachs and Morgan Stanley then secured approval to boost ownership of their onshore broking JVs to 51%.
In April, Credit Suisse got the nod to become majority owner of its onshore joint venture. The rest of the year was littered with red-letter days for foreign banks, busy celebrating good news from one or more of China’s financial watchdogs.
It was a clear sign that regulators were saying: China is open for business.
“It was a show of strength by regulators, to show the China market was moving forward,” says Harry Handley, a data analytics associate at Shanghai-based financial consultancy Z-Ben Advisors.
“Given the whole climate of last year, with the pandemic and travel issues, the speed at which the regulators moved forward caught us by surprise.”
Regulators were moving far faster than normal, but some decisions – notably the approval of Amundi’s wealth management joint venture with Bank of China, handed down in September 2020 – came out of the blue.
Handley admits to being shocked at the speed of progress. Even domestic firms struggle to convince regulators to approve an application to let them, say, launch a new fund.
The pipeline gets clogged, he says, with “some applications flying through and others taking years. Regulators are selective. They see what they feel the industry needs, what an applicant brings, and then they match the two.”
Yet Handley believes the next 12 months will be just as busy, as rule-makers rush to approve a host of licences lodged by global financial institutions since the start of last year.
For years, fears China would never quite open up persisted. In 2020, it crossed this particular Rubicon, making its long-term intentions – of building well-run financial and capital markets with the active participation of global players – abundantly clear.
And despite all the approvals of the past year, there are many more to come in the months ahead. Fidelity and Neuberger Berman both submitted applications to set up wholly owned retail fund firms, as have Schroders and AllianceBernstein.
New York-based VanEck established its first joint venture in China in 1996 and in November 2020 it applied to set up its own retail fund management business.
Several investment banks have broking joint ventures in the pipeline, too, including Standard Chartered and Intesa Sanpaolo.
JPMorgan leads
One institution that clearly knows what it is doing in China is JPMorgan. The bank has topped Z-Ben’s China survey every year since 2016.
Its score in 2021 of 72.82 – the highest so far recorded and an increase over the previous year of 4.59% – is the result of a mechanism that weighs a bank’s ability to serve onshore customers (a metric that makes up 50% of the score), as well as inbound (30% of the total) and outbound (20%) clients.
UBS is second, with a score of 63.31, followed by Invesco with 53.8 – though both saw their respective numbers fall.
“JPMorgan has a very good onshore business,” Z-Ben’s Handley says. “They are strong onshore and inbound, and have always been the leader in outbound. They utilize the channels best and they have the most holistic approach to China.”
The US bank moved closer to securing full ownership of its mutual fund JV in the last year, and in March 2021 it bought a 10% stake in China Merchant Bank’s wealth management arm.
