China promises market opening

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Remarkably, Donald Trump’s claim that it is easy to win trade wars may be coming true. Seemingly in response to his escalating threats, China has promised a range of market liberalisations, including an assurance that it will speed up the opening of its insurance sector.

In recent weeks Trump has proposed tariffs on 1,300 imported Chinese products, worth about US$50 billion a year, and followed China’s counter-tariff move by proposing a further US$100 billion of import taxes. And it may be working.

In a speech to the annual Boao Forum for Asia in Hainan on Tuesday, Chinese president Xi Jinping affirmed China’s commitment to liberalisation and mutually beneficial development, and indirectly addressed Donald Trump’s criticism of China’s trade imbalance with the US.

“China does not seek a trade surplus,� Xi said. “We have a genuine desire to increase imports and achieve a greater balance in international payments under the current account.�

Speaking on a panel at the forum, Yi Gang, China’s central bank governor, said that foreign ownership limits in life insurance companies will be raised to 51% by the end of June as part of a wider package of policies aimed at further opening the country’s financial sector to foreign investors.

The central bank also said on its website that it would remove the foreign ownership cap completely within three years, which is the first time China has given a definite timeline on the opening of its financial market.

“The greater detail on the timing of implementation may indicate China’s desire to avoid an escalation in trade restrictions and to boost market confidence that the announced measures to open up the market will be adopted in practice,� said Moody’s in a note on Wednesday.

China has certainly broken promises many times in the past, so a degree of scepticism is warranted as to the veracity of these commitments. But Trump’s reckless diplomacy may demonstrate that the US has a stronger hand in trade with China than it has been willing to play in the past. And the potential growth available in China would certainly seem to justify a tougher stance.

Indeed, in the spirit of this renewed commitment to liberalisation, China’s central bank said “it is better to implement reform and opening-up measures sooner rather than later� and promised to implement further measures within “the next few months�.

These include allowing eligible foreign investors to provide insurance agent and loss adjuster services in China, and lifting restrictions on the business scope of foreign-invested insurance brokerage companies, treating them as equals of domestic companies.

Also, foreign insurance companies will no longer need to have a representative office in China for two consecutive years prior to establishing a fully-owned institution.

Beyond the insurance sector, China also vowed to further improve stock market connectivity with Hong Kong, tripling the daily quota from May 1 to Rmb52 billion for Shanghai-bound and Shenzhen-bound investment, up from Rmb13 billion, while Hong Kong-bound investment will be raised to Rmb42 billion from Rmb10.5 billion.

The central bank also took the opportunity to remind the world of the steps it is already taking, including plans to launch Shanghai-London Stock Connect this year.

“The agencies concerned are losing no time in revising relevant laws and regulations so as to get measures implemented ahead of the above timeline,� said the central bank. “To assist policy implementation, we will adopt supporting measures and strengthen financial regulation while opening up the financial sector. While expanding market access and business scope for foreign institutions, we will apply in an equal manner prudential regulation to enterprises of all types of ownership according to relevant rules and laws. By strengthening financial supervision, we can effectively prevent and defuse financial risks and maintain financial stability.�

Of course, it remains to be seen if any of this will amount to anything in practice. Financial services are notoriously closed markets even in developed countries. The EU, for example, has made much more progress in allowing Germany to sell its goods throughout the single market than it has in allowing the UK to sell its services.

But it also true that China has long expressed a desire to shift towards a more consumer-focused economy, which necessarily implies a more balanced trade relationship. Its problem has centred around fears that a more open capital account will lead to destabilising outflows. The obvious counter to this is to create an investment environment that welcomes inflows, as there is certainly no shortage of foreign investment that would like the opportunity to capture Chinese growth.

If Trump succeeds in encouraging such a move, he may go down in history for helping to open China’s market to the world. Just like Richard Nixon.

This post was syndicated from InsuranceAsia News. Click here to read the full text on the original website.

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