Economics & Strategy China market is more compelling

"The opening-up of China's financial market is accelerating. Rapid progress has been made in the past three years since President Xi laid out the blueprint at the BOAO Forum for Asia.", said by Dr. Wang Tao, Chief China Economist, UBS, at the opening speech of The Institute of International Finance (IIF) seminar about "China's Financial Market Liberalization" in mid-March which focused on China’s market opening-up and its far-reaching implications for the financial services industry.

Financial markets in China are opening

With the further opening of its financial markets in 2020, China has begun allowing foreign institutions to hold more ownership of Chinese financial institutions. It abolished the upper limit of foreign ownership in securities, asset management, banking, insurance, futures and so on. More foreign investment will be able to enter China's financial service sector.

Additionally, China's capital market continues to facilitate opportunities for overseas investors. Dr. Wang said: "UBS was the first foreign institution to qualify as a Qualified Foreign Institutional Investor (QFII) in 2003. In recent years, with the implementation of the Stock Connect, it gives international investors direct access to the domestic market without having to physically be there, which provides great convenience for overseas investors."

Compared with stock markets, the opening progress of the bond market has not fallen behind at all. In July  2017, the "Bond Connect" was launched. It enabled international investors to invest in the China Inter-Bank Bond Market (CIBM) , given the basic conditions remain unchanged against the original trading settlement system. With the expansion of China Inter-Bank Bond Market in the recent years, its attraction to international investors continues to increase.

Focus on the 14th Five-Year Plan. New Progress in Reform

We are looking forward to a future when China's financial market will be further opened up. In the meanwhile, It is also very important to reform the regulatory system.

Dr. Wang said that, in order to develop business in China, in addition to applying for relevant business licenses, the China market also needs a well-established financial system. It is particularly important to establish a more transparent and internationally recognized financial system and regulatory framework.

In addition, regulators will further push forward financial reforms, including the registration system for initial public offerings (IPOs) in the stock market and better pricing in the bond market. "China’s bond market is huge but there are still some problems with corporate bonds and municipal government financing platforms," said Dr. Wang, " Establishing a more transparent and market-oriented system and deepening reform is the main direction for the next few years."

Markets are interconnected with inflows and outflows. Many Chinese investors now have the desire to invest in overseas assets. Dr. Wang added, "Regulators intend to gradually open up capital accounts while being more cautious to prevent the market from risking large outflows. However, the opening up has continued, such as the recent expansion of QDII quotas and the relaxation of company-related overseas investment policies."

"In accordance with the RMB internationalization progress, I think China will encourage and welcome foreign companies to raise funds in China," Dr. Wang said.

Foreign-based institutions should grasp the investment opportunities

In 2006, UBS became the first foreign financial institution to raise its stake and take majority control of a securities joint venture in China (UBS Securities). Through more than ten years of effort, we have recruited countless local talent and developed roots in the China market. Currently, UBS has nearly 1,300 employees in Mainland China and has built a professional financial services team.

On the attractiveness of the Chinese market, Dr. Wang said: "China's stock market used to be dominated by retail investors but now more overseas institutional investors are flooding in. They are more value-oriented and focused on long-term investment. These entrants also changed the market characteristics and made China's stock market more compelling."

For example, the proportion of foreign ownership in China's bond market is about 3.5%, which still has room to improve. "The yields of Chinese government bonds are very attractive. Hence, there are a lot  long-term investors of pension funds, sovereign wealth funds and so on, conducting in-depth research and planning long-term asset allocation in China," Dr. Wang said.