China’s $42 trillion financial sector is set to open up to the world like never before.
To deliver on longstanding pledges and help stave off the threat of tariffs from U.S. President Donald Trump, Chinese officials have set a June 30 deadline to ease ownership and business restrictions for banks, securities firms, asset managers and life insurers.
Securities firms like Goldman Sachs Group Inc. and UBS Group AG have an opportunity to boost their share five fold as they take more direct control of joint ventures, projections by Bloomberg Intelligence show. Insurers including AIA Group Ltd. are set to cash in on their already healthy presence, while banks like HSBC Holdings Plc and Citigroup Inc. face a steeper road ahead to build market share, but will reap juicy profits as they do so.
Much as World Trade Organization entry in 2001 revolutionized the manufacturing industry, opening the financial sector could transform how capital is allocated and wealth managed across China. The charts below show the state of play and estimates on how that’ll change.
Earnings at foreign banks are set to grow by more than 10 times by 2030. Even so, they’ll remain bit players. The broader impact will come as their entry improves lending standards and chips away at a system that’s geared heavily in favor of bloated state-owned enterprises, to which banks channel loans betting that Beijing will bail them out if needed.
“A more open and competitive financial sector should deliver more growth bang for each unit of credit buck — critically important if China is to make headway on deleveraging,” according to Bloomberg Economics Chief Asia Economist Tom Orlik.
HSBC, Bank of East Asia Ltd., Standard Chartered Plc and Citigroup are currently the biggest foreign banks in China. HSBC, with more than 7,000 staff in the mainland according to its website, aims to have 5,000 in Guangdong province alone by 2020, former HSBC Chief Executive Officer Stuart Gulliver said in December.
Foreign-backed securities ventures’ profits are forecast to almost quadruple as their share increases five fold by 2030. UBS has already submitted an application to acquire a majority stake in its Chinese venture, becoming the first global bank to take advantage of the latest commitment to open up. Goldman Sachs — which has been quietly laying the groundwork for a beefed up onshore business — plans to significantly increase both headcount and the amount of capital it deploys once it can get control.