China took another step in opening its $44-trillion financial sector to the world, announcing plans to remove limits on ownership in local banks and scrap size requirements for foreign firms that operate onshore.

Among the changes, overseas insurance groups will be allowed to set up units in the world’s second-biggest economy, the China Banking and Insurance Regulator said on Wednesday, as high-level trade talks between China and the US got underway in Beijing.

China opens up

The rules are an incremental step along the path to opening China’s financial system, months after foreign firms were permitted majority stakes in local securities joint ventures. While Wednesday’s changes could lead to full-blown local bank takeovers — a potential shortcut into the market — the likes of JPMorgan Chase & Co and Goldman Sachs Group may have to wait years before finance in China looks like Wall Street or the City of London. “We are seeing a trend of China gradually and steadily opening up its financial industry to the outside world,” said GeShoujing, a Beijing-based senior analyst at the Reality Institute of Advanced Finance.

HSBC Holdings holds shares in Bank of Communications Co, and while the London-based firm has not recently commented on increasing that ownership, Bocom’s board secretary said last year it would be open to such a move. Wall Street titans from Morgan Stanley to UBS Group operate securities joint ventures in China, and have seized on the financial opening to seek greater stakes in the units. The changes build on steps China’s leaders have taken in the past 18 months to level the playing field between overseas and local firms, as they have come under increasing pressure from US President Donald Trump’s administration. Fresh funds would also provide timely support for a banking industry under pressure from a slowing economy and rising bad loans.

“China is delivering on promises made to further open the financial markets to foreign companies, both big and small,” said Liao Chenkai, a Shanghai-based analyst at Capital Securities Corp. This may also be a possible response to the trade war with the US, pushing China to further open its markets.

While China has taken measures to ease barriers of entry for global firms, the efforts have not so far changed the competitive landscape. In sectors from banking to insurance and brokerage, local firms still dominate with more than 90 per cent market share. Lengthy and often opaque application processes can deter foreign investors, while key areas of finance, such as bond underwriting, are mainly reserved for domestic companies.

“The approval process may not be very transparent so it could be difficult to know whether and how much to commit in terms of people, time and money,” said Hubert Tse, a partner at Chinese law firm Boss & Young in Shanghai, who advises global banks, insurers and financial institutions in China.

“From experience, usually the biggest firms would get their foot in the door first, so others, even though qualified, may not be considered initially.” The pace of the opening has received some criticism from foreign CEOs. Oliver Baete, chief executive officer of Allianz, the first overseas company to win approval to set up an insurance holding unit in China, said last month that the country must speed up allowing foreign firms to open local branches.

Key changes

Some of the changes being sought are: Remove asset requirements for foreign banks wanting to set up branches and those wanting to be locally incorporated in China; allow overseas financial institutions to invest in foreign insurers in China; remove limit that foreign insurance brokerage companies must have more than 30 years of operating experience and assets of more than $200 million to carry out related business in China; and relax requirements for foreign and Chinese companies to invest in and set up consumer finance companies.

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