Opinion

China Fails to Woo U.S. With Financial Sector Opening

China's recent announcement of reforming its financial market has received little enthusiasm from the U.S. despite its potential benefits. The lack of a clear agenda regarding its economic rival has pushed the Trump administration to minor any significant progress of China's reform, and to maintain focus on strategic issues.

By: Date: January 5, 2018 Topic: Finance & Financial Regulation

This opinion piece has been published by Brink News

Now that the dust has settled, one thing is clear: President Donald Trump’s visit to Asia in November served as a milestone in the increasingly rapid transfer of power from the U.S. to China. President Xi Jinping’s enthronement during the 19th Party Congress as China’s leader for the foreseeable future did most of the work, but Mr. Trump helped by failing to advance a clear agenda articulating the U.S.’s key national interests regarding China.

The transfer of economic power to China has only accelerated since Mr. Xi came to power. It will accelerate further if and when China institutes real economic reform. But when China announced reforms to open up its financial sector—just hours after Mr. Trump concluded his visit to Beijing—the reaction from the Trump administration was muted at best, as the administration remains focused on China’s too-benign attitude toward North Korea and its nuclear missile program.

Reaction from investors, too, was muted. The only significant announcement came from UBS for a securities investment that was approved months before the announcement. Recall that China has been promising to open its financial markets since entering the World Trade Organization in December 2001. Beyond the lack of progress so far, the announcement does not fully cast away doubts about the speed and depth of the opening going forward.

For example, the foreign ownership cap of domestic securities firms will increase from 49 percent to 51 percent and then to 100 percent in the coming three years. However, there was no hint about lifting the current restriction on listed securities companies (ranging from 20 percent to 25 percent based on various conditions). Until further clarification, this probably means foreign investors can only gain control of non-listed securities firms, which are, of course, much smaller.

There’s even less clarity regarding the banking and insurance sectors. We already know that reforms are delayed for another three years. However, China’s vice finance minister, Zhu Guangyao, told The New York Times that China would raise the investment in insurance companies to 51 percent in three years and 100 percent in five years. In addition, China also plans to end its current 25 percent limit of foreign ownership in banks, according to what Mr. Zhu told the Times.

China clearly has a strong self-interest in opening up its securities market. After the massive growth of bank balance sheets and the piling up of non-performing loans, Chinese regulators hope that the market (with Chinese characteristics) will do the cleaning up.

The massive securitization occurring in China over the last couple of years would clearly benefit from foreign expertise. Even better would be if foreign players brought along foreign investors to share in the potential losses. Within this context, one should not be too surprised at the general lack of interest in the opening of China’s financial sector.

Certainly the move does not seem to have softened the U.S. administration’s stance toward China. The U.S. has officially declared its opposition to China’s obtaining market economy status from the WTO. Of course, this decision might be more closely related to China’s perceived lack of cooperation on North Korea. But it also suggests that obtaining a couple of licenses to operate in China’s financial market will not calm down Mr. Trump.

Clearly, Mr. Xi is frustrated with Mr. Trump’s reaction to his kind gesture. All in all, it would be hard to expect an auspicious 2018 for the Trump-Xi couple—probably the most important one on earth.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read about event More on this topic

Upcoming Event

Nov
18
08:30

The role of China in global value chains

This event will look at how the rise of China is affecting global value chains.

Speakers: Alicia García-Herrero, Margit Molnar, Guntram B. Wolff and Seamus Grimes Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author

Opinion

Why investors should temper optimism over a China trade rally

The economy is in worse shape than in 2015 and policies to boost growth are not as effective as they once were

By: Alicia García-Herrero Topic: Global Economics & Governance Date: November 6, 2019
Read article More on this topic

Blog Post

China’s growing presence on the Russian market and what it means for the European Union

The European Union’s relationship with Russia is strained, but the two economies are nevertheless highly intertwined. A huge share of Russia’s exports go to the EU, while in the early 2000s, EU countries supplied more than half of Russia’s imports. The EU is also a major investor in, and lender to, Russia.

By: Alicia García-Herrero and Jianwei Xu Topic: Global Economics & Governance Date: November 6, 2019
Read article More on this topic More by this author

Opinion

Bolsonaro’s pilgrimage to Beijing

A strategic alliance between Brazil and China could be music to the ears for both leaders, but Bolsonaro does not want to look like one more vassal. Xi Jinping might need to think of a more exclusive offer to the President of the largest economy in Latin America.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: October 29, 2019
Read article More on this topic

Blog Post

Implications of the Japan – United States Mini Trade Agreement

Details of the US-Japan mini-trade deal are lacking but the agreements’ direct impact on the US and Japanese economies is likely to be minuscule. The deal seems to have been made to compensate American farmers – a crucial electoral base of the President – for their losses from the trade war with China.

By: Sybrand Brekelmans and Uri Dadush Topic: Global Economics & Governance Date: October 11, 2019
Read article More on this topic More by this author

Opinion

The Case for Intelligent Industrial Policy

Although national industrial policies have a bad reputation, there is a strong case for government support to sectors that will increasingly rely on artificial intelligence. In this regard, the German government’s plan to promote production of electric-car batteries may accelerate an industrial renaissance in Europe.

By: Dalia Marin Topic: European Macroeconomics & Governance Date: October 7, 2019
Read article

Opinion

Southbound flows rescuing Hong Kong equity market

China seems to be coming to the rescue as social unrest affects the city’s financial market, but it’s probably only for arbitrage reasons

By: Alicia García-Herrero and Gary Ng Topic: Finance & Financial Regulation, Global Economics & Governance Date: October 2, 2019
Read article More by this author

Blog Post

Questions to the High Representative and Vice-President-designate Josep Borrell

Josep Borrell, the incoming High Representative and Vice-President-designate must explain how von der Leyen’s ‘geopolitical Commission’ intends to adapt to a global landscape dominated by an intensifying rivalry between Washington and Bejing.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance, Global Economics & Governance Date: September 30, 2019
Read article Download PDF More on this topic

External Publication

Simple Rules for Better Fiscal Policies in Europe

Proposals to reform the euro area are on the agenda again. An overhaul of the complex set of European fiscal rules should be top priority on this agenda because the fiscal framework in place suffers from clearly identified problems: rules are complex (therefore difficult to internalise for policymakers), pro-cyclical (therefore potentially destabilising), and noncompliance is the norm (therefore not credible).

By: Zsolt Darvas, Xavier Ragot, Philippe Martin, Jean Beuve and Samuel Delpeuch Topic: European Macroeconomics & Governance Date: September 24, 2019
Read article

Blog Post

The EU is in the US trade war crosshairs. It should further raise its game

The incoming European Commission faces a dilemma on the transatlantic trade relationship, because of the unpredictable policies of the Trump administration. The EU must rally its citizens; the greater the divides between member states and EU institutions, the lesser the chances are of forging effective policies toward the United States and China.

By: Anabel González and Nicolas Véron Topic: European Macroeconomics & Governance, Global Economics & Governance Date: September 19, 2019
Read article More on this topic

Opinion

Trump's Backfiring Trade Policy

President Trump’s radical trade policy continues, as do trade disputes with China. The president promised to sign far better trade deals, ensure fair treatment of American firms and reduce the United States’ trade deficit. None of these objectives have been met.

By: Uri Dadush and Laurence Kotlikoff Topic: Global Economics & Governance Date: September 17, 2019
Read article Download PDF More on this topic

Working Paper

EU trade policy amid the China-US clash: caught in the crossfire?

What risks face the EU with regard to China’s strategic aims in trade policy and how can the EU respond? The US effort to isolate China poses particular risks for Europe. How can the EU counter such efforts with the aim of forging its own distinct trade policy? How should the EU move forward with reform of the World Trade Organization (WTO) in light of differing demands and aims of trading blocs like China and the US?

By: Anabel González and Nicolas Véron Topic: Global Economics & Governance Date: September 17, 2019
Load more posts