China’s financial opening could be a classic case of be careful what you wish for.
The U.S.-China trade deal to be signed Wednesday gives Trump some immediate benefits but allows both sides to put off the most difficult issues.Yet, a bevy of hurdles still promise to complicate the efforts of U.S. banks and financial services firms. China is home to the world’s four largest banks by assets, the biggest global fintech company and other formidable competitors. Its tightly controlled system is opaque and arbitrary when it comes to licenses, and the regulation burden is heavy.
Wealth managers have hardly fared better. Since an opening three years ago, BlackRock Inc., Man Group Plc and 20 other firms licensed to run private securities funds for high-net-worth individuals manage just 0.2% of China’s 2.5 trillion yuan in hedge fund assets.Waiting for approvals to do business can be a tortured affair. JPMorgan and Tokyo-based Nomura Holdings Inc. waited more than 10 months for a green light to take majority control of local securities firms.
Many foreign firms have the option to raise their stake in local joint ventures should Chinese law permit. Still, the price tag could be steep.nearly 15 times the appraisal value to buy a 2% additional stake in its securities venture from its Chinese partner. JPMorgan’s partner ceded control in its asset-management venture at a 33% premium.The JPMorgan transaction “looks rather rich,” asset-management research firm Z-Ben Advisors Ltd. said at that time.
The measures in the trade deal “still haven’t significantly touched China’s outbound capital flows, which is where the market see greater near-term potential,” said Brock Silvers, a managing director at Adamas Asset Management in Hong Kong.
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