Financial opening-up is the general direction and long-term trend of China's reform and opening-up, one that needs to be promoted as China's economy continues to grow and its participation in globalization continues to deepen.
In general, China's financial opening can be divided into two categories. The first is the opening-up of capital and financial accounts, and from the practical operational perspective, this would include the liberalization of cross-border capital in the trading and exchange links, including exchange rate policy, capital projects, RMB internationalization. The second is related to the financial services industry, that is, the liberalization of financial services such as banking, securities, and insurance for domestic and foreign financial institutions, as well as the relaxation of domestic and foreign residents or institutions participating in financial market transactions; there is also opening-up of financial institutions and market.
Looking from the historical experience and practices of different countries, there is no fixed sequence between the opening-up of the financial services industry and the opening-up of capital and financial accounts; the sequence of the opening-up depends on the actual situation in the country. Some Chinese researchers believe that for the financial services industry, the key lies in whether the domestic regulatory system is sound and if the financial institutions have strong market competitiveness; for capital account related fields, it is necessary to coordinate to promote the capital account opening-up, the marketization of the exchange rate market and interest rate.
Financial opening-up has its own uniqueness; for instance, the systemic nature of the financial industry is likely to lead to the systematic nature of financial risks. The rhythm, timetable, and roadmap of the financial industry's opening-up to the outside world need to be designed. The People's Bank of China has stated that China will follow the three principles to promote the opening-up of the financial industry: First, the principle of pre-entry national treatment and negative list; second, the opening-up of the financial industry will mutually cooperate with the reform of the exchange rate formation mechanism and the capital account convertibility process, and advance all of these at together. Third, during the opening-up, China should pay attention to preventing financial risks, and match the financial supervision capabilities with financial openness.
It is precisely because of the systemic, coordinating and gradual nature of financial opening-up, and because of different judgments on financial risks and different concepts of financial opening-up, in the actual implementation process, even if the major voices agree with financial opening, there is still the controversy between those who opt for steadiness and cautions, and those who want to accelerate the opening-up, and the road map and timetable for financial opening-up of these two parties are different as well.
In the past two years, the counter-globalization wave represented by the U.S.-China trade war has made China's financial opening-up facing changes in the situation, which in turn exerted certain influences on China's financial opening-up. In 2018, although there were strong interferences from trade frictions, China still promoted a number of opening-ups in the financial sector in accordance with established arrangements, such as the abolition of foreign-funded shareholding restrictions of banks and financial asset management companies; domestic and foreign investment are treated equally, and foreign banks are allowed to set up branches and sub-branches at the same time in the Chinese territory; there was also the increase in the shareholding ratio of foreign-funded enterprises in the securities, fund management, futures, and personal insurance companies.
However, facing significant changes in the external economic and trade environment, as well as the international financial system and rules that are still somewhat unfamiliar to China, China may need to adopt relatively cautious arrangements at this stage. In other words, the principle of "macro-prudential" can also be adopted for opening-up to finance. As a well-known scholar of China's independent think tank, Anbound's chief researcher Chan Kung recently pointed out constructively that from the perspective of public policy, the issues and strategic choices should be paid attention to China's financial opening-up process. Chan Kung said that in the financial sector, China now looks forward to a full docking with the world financial community. This is because China's financial opening-up and the RMB exchange rate require the support of foreign capital and that the overseas expansion of actual Chinese enterprises would need China's financial industry. However, if it is somewhat unrealistic at present to simply promote comprehensive contact and referring to the examples of other countries. The reason is very simple. The political environment in the outside world forms pressure to China and creates obstacles to Chinese financial industry's comprehensive external contacts. At some point, the financial sector might even evolve into a battleground for international geopolitical competition.
Under this circumstance, Chan Kung pointed out that China's financial opening-up should focus on selecting appropriate and useful strategies to facilitate learning and reference under realistic constraints. If China chooses a systemically important financial institution with low financial risk tolerance, the institution may impose excessive demands and requirements on China, and China may be subjected to excessive regulation and restrictions in the West. For example, last year Huawei was subjected to various pressures and restrictions in the name of national security; two British banks, namely HSBC and Standard Chartered withdrew from providing global financial services to Huawei. Hence, Chan Kung emphasized that it is a wise choice for China to cooperate with financial capital that dares to take risks. These financial capitals, such as hedge funds and some fund management institutions, have the impulse to enter the Chinese market. They generally hold more objective positions, focus on commercial interests, and do not consider much on issues such as politics and ideology.
The following example can show the objectivity and rationality of certain financial institutions. David Rubenstein, co-founder and co-executive chairman of Carlyle Group, a world-class private equity firm, analyzed China's real needs for foreign capital in a recent interview with McKinsey. Rubinstein pointed out that in countries like China do not really need the West's capital; what China really wants is expertise and skills, business relationships, and management skills. China hopes to be introduced to the operating skills and technical means of private equity, as well as the business relationship of the Western companies to teach Chinese how to do these things in the West; when Westerners teach them these skills, Chinese people will be able to do the same things in the West. Therefore, the Chinese don't really need so much capital, and they tolerate the West's capital entry to get something else they really want.
It should be said that the views of Rubenstein are more profound than the majority of the others who consider "China needs foreign capital", and such views objectively reflect China's needs. Institutions like Carlyle will rationally enter the Chinese market based on business considerations and strike a balance between acquiring business benefits and imparting professional skills to China. Such institutions are also foreign-funded financial institutions that China will give priority to cooperation in the future; they will have rational judgments and constructive help for China's financial opening-up.
Final analysis conclusion:
The opening-up of China's finance is a process; in this process, it is best for China to deal with foreign financial institutions selectively. This should be a strategic consideration for China.
