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 [email protected].

Read article More on this topic More by this author
 

Opinion

Reading tea leaves from China’s two sessions: Large monetary and fiscal stimulus and still no growth guarantee

The announcement of a large stimulus without a growth target indicates that China’s recovery is far from complete.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: May 25, 2020
Read article More by this author
 

Podcast

Podcast

China’s financial system: opening up and system risk

China is opening up its financial sector- What does that mean for China and the world?

By: The Sound of Economics Topic: Finance & Financial Regulation, Global Economics & Governance Date: May 22, 2020
Read about event More on this topic
 

Past Event

Past Event

The Sound of Economics Live: China’s financial system: opening up and system risk

China is opening up its financial sector? What does that mean for China and the world?

Speakers: Alicia García-Herrero, Gary Liu and Giuseppe Porcaro Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 19, 2020
Read about event More on this topic
 

Past Event

Past Event

The Sound of Economics Live: China’s economy after COVID-19

This episode of The Sound of Economics Live will explore the short and medium term prospects for the Chinese economy after COVID-19

Speakers: Alicia García-Herrero, Yiping Huang and Giuseppe Porcaro Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 6, 2020
Read article More on this topic More by this author
 

Opinion

Depression, and not stagflation, could haunt China in 2020

This opinion piece was originally published in Asia Times and Medium China’s GDP in the first quarter of the year has surprised nobody but the devil is in the details. Local retail sales continued to fall in March (-16%), marginally better than during the peak of the Covid19 outbreak in January and February. The continuation […]

By: Alicia García-Herrero Topic: Global Economics & Governance Date: April 17, 2020
Read article More on this topic More by this author
 

Podcast

Podcast

Mythbusters: debunking economic myths

Economics seems to be full of myths that are hard to debunk. Will robots take our jobs? Are trade deficits bad? Is China such a big economy simply because of the size of its population? This week, Nicholas Barrett, Maria Demertzis, Marta Domínguez-Jímenez and Niclas Poitiers put on the detective cap and become Bruegel's own economic mythbusters.

By: The Sound of Economics Topic: Global Economics & Governance Date: April 3, 2020
Read article Download PDF
 

External Publication

Analysis of developments in EU capital flows in the global context

This report presents an overview of the recent trends of capital flows, focused especially on the past year. It provides a detailed analysis at the global level and at the European Union level.

By: Grégory Claeys, Maria Demertzis, Marta Domínguez-Jiménez, Konstantinos Efstathiou and Tanja Linta Topic: European Macroeconomics & Governance Date: March 16, 2020
Read article More on this topic More by this author
 

Opinion

Uncoordinated policies behind market collapse

Underlying issues, and not just the coronavirus panic, fed the recent meltdown

By: Alicia García-Herrero Topic: Global Economics & Governance Date: March 10, 2020
Read article More on this topic
 

Blog Post

Gerard Masllorens headshot

The cost of coronavirus in terms of interrupted global value chains

The coronavirus is slowly morphing itself into an important shock. While the extent and cost of this pandemic are unknown, we do know that global supply chains that link Europe to China will be seriously disturbed. We take a look at the numbers based on input-output models. The industry that will be the most affected is Computers and Electronics, followed by textiles.

By: Maria Demertzis and Gerard Masllorens Topic: Global Economics & Governance Date: March 9, 2020
Read article More on this topic
 

Blog Post

What can the EU learn from the China-Switzerland free trade agreement?

The US-China trade war has placed EU trade relations with China under the microscope. Should the EU challenge China’s trade practices and employ trade defence measures? Or should they be diplomatic and embark on negotiations, perhaps paving the way to a Free Trade Agreement? Close examination of the 2013 agreement between China and Switzerland suggests much will have to change for trade negotiations between China and the EU to succeed.

By: Uri Dadush and Marta Domínguez-Jiménez Topic: Global Economics & Governance Date: March 3, 2020
Read article More on this topic More by this author
 

Podcast

Podcast

Will globalisation survive the Coronavirus?

As the Coronavirus continues to spread, schools have closed, flights have been canceled and entire towns have been quarantined. Most of those who contract the virus will undoubtedly survive, but can the same be said for globalisation? Is it time for economists to question the virtue of international supply chains? Should policymakers in the west […]

By: The Sound of Economics Topic: Global Economics & Governance Date: February 28, 2020
Read article More on this topic More by this author
 

Opinion

Companies must move supply chains further from China

Virus shows Southeast Asian factories too dependent on imported production inputs

By: Alicia García-Herrero Topic: Global Economics & Governance Date: February 28, 2020
Load more posts