Financial services to China
(Last updated: 16 Oct 2012)
Trends and opportunities
The market
The Chinese financial services market has been in a process of change and development for the decades. It is a very broad industry encompassing banking, insurance, fund management, stock broking, financial planning and more. As it is unrealistic to provide minute-by-minute trends and opportunities on this page we would recommend those with business enquiries contact the Austrade team in China directly.
The stock market
Since China’s accession to the World Trade Organization (WTO) in 2001, the financial service industry in China has progressively opened. China’s strong economic growth, fast growing middle class, large number of investors, high savings rate and developing capital markets, have elicited interest from many foreign financial firms.
China’s Shanghai and Shenzhen Stock Exchanges were established in December 1990 and June 1991, respectively. At the end of 2011, the Shanghai Stock Exchange boasted 975 listed securities and 931 listed companies, with a combined market capitalization of RMB14.84 trillion. The Shenzhen Stock Exchange had 1,411 listed companies, with 484 on the Main Board, 646 on the SME Board and 281 on the ChiNext with a combined market capitalization of RMB 6.6 trillion (USD 1.0 trillion).
The Shenzhen Stock Exchange opened the ChiNext board, a NASDAQ-type exchange for high-growth, high-tech start-ups, on October 23, 2009.
China’s equity markets are evolving towards a more even mix of investor classes. In some respects, institutional investors have now taken over from retail investors as the major force driving equity markets. As investment funds, pension funds, insurance companies, corporates, sovereign wealth funds (SWFs) and QFIIs all look to increase their allocations to Chinese equities, the role of both domestic and foreign institutions is growing.
(Source: www.sse.com.cn)
Fund management
In 1998 there were less then 10 fund management companies managing less than RMB500 billion. By the end of 2011, the the assets under management (AUM) of China’s mutual fund industry reached RMB2.2 trillion, 8.5 times the net value of fund assets in 2003.
By the end of 2011, there were 69 fund management companies in China, among which, 24 had a history of more than 10 years. Although the Chinese stock market has been weak recently the funds' average rate of return from year 2000-2010 was 235.39 per cent, and the annualized rate of return was 12.86 per cent.
Of the 69 fund management companies active in the China market as of the end of 2011, 39 were foreign joint ventures.
The Commonwealth Bank of Australia (CBA) established a joint venture, the First-State Cinda Funds Management Co., Ltd, with Cinda Asset Management Company in August 2006. The joint venture launched its first A-share fund, the China First-State Cinda Growth Leaders Equity Fund, in March 2007. The fund was sold out within four hours of its launch, raising over RMB8.3 billion.
Qualified Foreign Institutional Investors (QFII) and Qualified Domestic Institutional Investors (QDII) are two licences key to foreign financial firms who want to move into the Chinese fund management industry. Foreign financial firms who want to invest in RMB denominated stocks and fixed income products need to acquire a QFII licence first.
The first QFII licences were issued to UBS Ltd and Nomura Securities in May 2003. By June 2012, 172 foreign investment institutions had received licenses to conduct QFII business including AMP Capital Investors Limited. Of those 172 institutions, 145 have actually made investments in China’s capital markets, with total investment equalling $27.2 billion.
QDII licences were first issued in May 2007. These allow Chinese banks, insurance companies and funds management companies to invest in the overseas financial markets. As of February 2012, 96 QDII licenses have been issued to 26 commercial banks, 31 funds companies, 8 securities companies, 26 insurance companies and 5 trust funds, with US$75.25 billion of investment quota allocated.
Under the QDII program, the China Banking Regulatory Commission (CBRC), the China Security Regulatory Commission (CSRC), and the China Insurance Regulatory Commission (CIRC) limit the scope of investment for each type of QDII entity as follows:
| Type of QDII entity |
Investment scope |
| Commercial banks |
Can invest in overseas fixed-income products (e.g. bonds, notes), structured and derivative products and certain equity products (e.g. stocks, public funds), but they cannot invest in commodity derivatives, hedge funds and securities below a ‘BBB’ rating. |
| Security companies & fund managers |
Restricted to invest in overseas stocks, bonds, depository receipts, real estate investment trusts, public funds, structured products and other financial derivatives. |
| Insurance companies |
Restricted to invest their foreign exchange funds in overseas money market products(e.g. bank bills ,negotiable certificates of deposit), fixed income products, depository receipts, and certain equity products (e.g. stocks, stock funds) |
| Trust companies |
Restricted to invest in overseas money market products (e.g. bank deposits, depository receipts), bonds and financial derivative products permitted by CBRC. |
By the end of March 2012, the total quota approved by the State Administration of Foreign Exchange reached US$75.25 billion. With some recovery underway in developed economies following the global financial crisis and good performance in emerging markets, SAFE appears optimistic that outbound QDII investment will remain robust this year.
(Source: www.safe.gov.cn, www.kapronasia.com)
Banking
Over the past 12 years, China’s banking industry has gone through significant reforms and growth forming a complex banking system. In the last few years, the opening up of China’s banking sector has gained increased international attention and interest.
According to the CBRC 2011 Annual Report, by the end of 2011, the total assets of China’s banking institutions reached RMB113.3trillion, an increase of 18.9% year-on-year; total liabilities amounted to RMB106.1 trillion, up by 18.6% since 2010; and owner’s equity registered RMB7.2 trillion, up by 23.6% year-on-year.
At the end of 2011, China’s banking sector comprised of three policy banks, including the China Development Bank (CDB), five large commercial banks, 12 joint-stock commercial banks, 144 city commercial banks, 212 rural commercial banks, 190 rural cooperative banks, 2,265 rural credit cooperatives (RCCs), one postal savings bank, four banking assets management companies, 40 locally incorporated foreign banking institutions, 66 trust companies, 127 finance companies, 18 financial leasing companies, four money brokerage firms, 14 auto financing companies, four consumer finance companies, 635 village or township banks, 10 lending companies and 46 rural mutual cooperatives.
(Sources: CBRC Annual Report 2011)
Opportunities
China’s financial services industry is still in the process of shifting from being centrally-planned to a market-oriented industry. This transformation began less than 30 years ago but the most progress has been made in the last ten years or so and will continue for several decades.
During this process, there have been and will be opportunities for Australian companies to enter the Chinese financial services market. The following are some of the sub-sectors where Australia has a competitive advantage in the global market:
- Fund management, including superannuation, Real Estate Investment Trust(REITs)
- Wealth management/financial planning/private banking
- Credit risk assessment and management
- Banking products design, including mortgage, financial planning, tax advice, etc.
- Risk management for general insurance
- Community rating in health insurance
- Professional services to the financial service industry
- Security systems and fraud prevention
- Financial services related software products
Regardless of competitive advantage, all Australian financial services companies entering the Chinese market will face a number of challenges.
A major challenge for Australia is its profile. Australia is perceived by most of the Chinese as an agricultural and mining country with beautiful beaches. It is not widely known that almost 80 per cent of our GDP is from the services industry and that we have a sophisticated financial services industry.
Competitive environment
One of Australia’s challenges in the China market is the fierce competition from foreign financial firms , such as the USA, UK, Japan, Singapore, Korea, and in Europe. Some of these financial firms have been operating in China for 20-30 years and continue to aggressively promote their brand and image. They are more well-known by the Chinese financial services industry and Chinese financial firms and potential customers will naturally think of them first over Australian companies.
To succeed in the China market, Australian financial services companies, in particular newcomers need to persevere, be patient and proactive.
Tariffs, regulations and customs
Key regulators
There are five main regulators responsible for the Chinese financial service market. For some decisions, government departments such as , the Ministry of Commerce and the National Development and Reform Committee are also involved.
People’s Bank of China (PBOC)
The PBOC, established in December 1948, is China’s central bank. For a long period since then, the PBOC acted as both a government department in charge of overall financial supervision and a national bank handling comprehensive banking business. It only started functioning as a pure central bank without any business function in 1984.
In December 2003, the PBOC Law was amended and its major responsibility became formulating and implementing monetary policy, preventing and resolving financial risks, and safeguarding financial stability.
In theory, the PBOC should concentrate on regulations concerning monetary conditions and financial system liquidity aiming to promote economic growth and price stability. In practice, however, there is no clear division between the function of PBOC and that of the China Banking Regulatory Commission, which should focus on the strength of financial institutions, capital adequacy issues, and the restructuring of the banking sector. It is very common to see functions of these two organisations overlap in some areas.
China Banking Regulatory Commission (CBRC)
The CBRC was established in April 2003 to take over the regulatory function of the banking sector from the PBOC. The CBRC is a ministerial-level organisation under the State Council. It is entrusted with the regulation and supervision of banking institutions, asset management companies, trust and investment companies and other depository financial institutions.
The main functions of the CBRC are to govern and authorise banking institutions including: formulating and enforcing rules and regulations, overseeing and examining banks and their senior management as well as compiling and publishing statistics and reports on the banking industry.
China Securities Regulatory Commission (CSRC)
The major responsibilities of the CSRC are to formulate policies, development plans and rules and laws for the securities and future markets. The CSRC also supervises regional and provincial supervisory institutions, securities and futures exchanges and companies as well as overseeing the issuing, trading and listing of equity shares, bonds, and securities investment funds and more.
China Insurance Regulatory Commission (CIRC)
The CIRC is authorized by the State Council to conduct administration, supervision and regulation of the Chinese insurance market, and to ensure that the insurance industry operates stably in compliance with law.
The main responsibilities of the CIRC include formulating policies, laws and regulations for the insurance industry; examining and approving insurance companies and their personnel; and supervising the solvency and market conduct of insurance companies according to law.
State Administration of Foreign Exchange (SAFE)
The SAFE supervises foreign exchange activities of China’s financial institutions. Acting on behalf of the PBOC, the SAFE has extensive influence over the financial system. Its functions include overseeing the balance of payments statistical system and governing and supervising the foreign exchange market and its transactions.
Marketing your products and services
Market entry
Before entering the China market it is essential to consult widely and research the market thoroughly before making any business decisions.
Whether your business is in banking, funds management, consulting or financial planning, a solid marketing plan is a must. Each plan will differ greatly depending on the type of business and region within China. Austrade can assist you with market information and the best way to approach the market in your business.
Links and industry contacts
Government, business and trade resources for China
Regulators
China Banking Regulatory Commission – www.cbrc.gov.cn
China Insurance Regulatory Commission (CIRC) – www.circ.gov.cn
China Securities Regulatory Commission – www.cbrc.gov.cn
People’s Bank of China – www.pbc.gov.cn
State Administration of Foreign Exchange – www.safe.gov.cn
Commercial banks
Agriculture Bank of China (ABC) – www.abchina.com
Bank of China (BOC) – www.boc.cn
China Construction Bank (CCB) – www.ccb.com
Industrial and Commercial Bank of China (ICBC) – www.icbc.com.cn
Industry associations
China Banking Association – www.china-cba.net
Insurance Association of China – www.iachina.cn
Securities Association of China – www.sac.net.cn
Media
China Securities Journal – www.cs.com.cn
Caijing Magazine – www.caijing.com.cn
Hexun News – www.hexun.com (Chinese only)
Contact details
The Australian Trade Commission – Austrade – is the Australian Government’s trade, investment and education promotion agency.
Through a global network of offices, Austrade assists Australian companies to grow their international business, attracts productive foreign direct investment into Australia and promotes Australia’s education sector internationally.
For more information on how Austrade can assist you, contact us on:
Australia ph: 13 28 78 | Email: info@austrade.gov.au
A list of Austrade offices (in alphabetical order of country) is also available.