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2018 China Finance & Investment Chronicle

Looser Constraints on Foreign Investment, Stricter Oversight of "Shadow" Financial Products

2018-10-24 14:35 Wednesday

Asset management in China has always involved balancing expectations of future growth with immediate concerns related to shifting policy and regulatory environment. The finance and investment industry in China is currently at a crossroads; the government embarked on an ambitious administrative reshuffle earlier this year, and has followed up with stricter oversight of certain financial products, while in the process, opening up new sectors of the Chinese economy to foreign investment.

China Finance

Most significantly, in March, 2018, the China Insurance Regulatory Commission (CIRC) was merged with the China Banking Regulatory Commission (CBRC), with the People Bank of China (PBOC) assuming many of the legislative functions of both agencies. The new set up is intended to equip the central government with more flexible decision-making and regulatory authority, and provide more comprehensive oversight of China's finance industry, which had experienced a number of high-profile scandals in recent years.

Early indications suggest that the nascent China Banking and Insurance Regulatory Commission (CBIRC) is indeed exercising greater scrutiny over the market. CBIRC released new guidelines for wealth management products, in July, 2018, that call for banks to strengthen liquidity and risk management, while also lowering the minimum client subscription from 50,000 RMB to 10,000 RMB. The agency has also conducted a recent investigation into the thousands of largely unregulated P2P lending websites that have emerged, in which vigilant enforcement is expected in the coming months, and cracked down on the use of "real estate trusts" in order to help stabilize China's overheated real estate sector. Furthermore, the CBIRC has publically encouraged banks and other financial institutions to prioritize financing the "real economy", that is, support credit-starved firms, especially in agriculture and infrastructure development, which serve crucial functions.

The regulatory reform has occurred alongside two noteworthy trends, stricter limits on overseas capital outflow, and a loosening of restrictions on foreign investment in China. In June, 2018, the "Special Management Measures for Foreign Investment Access", or "negative list" was reduced from 63 to 48, with fewer restraints on foreign investment in mining, agriculture, value-added telecom, as well as other industries. In an unprecedented move, the Ministry of Commerce has opened the floodgates for foreign strategic investment, allowing foreign investors to purchase shares in A-listed companies in China. At the same time, the PBOC has closed loopholes used by investors in China to invest capital overseas, allowing for monetary easing in recent months, a trend that is expected to continue through at least the end of the year.

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