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China Big Bang Moment Opens Banks, Funds to Foreign Control

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Xi Jinping
  • China Big Bang Moment Opens Banks, Funds to Foreign Control

China took a major step toward the long-awaited opening of its financial system, saying it will remove foreign ownership limits on banks and asset-management companies while allowing overseas firms to take majority stakes in local securities ventures and insurers.

The new rules, unveiled at a government briefing on Friday, will give global financial companies unprecedented access to the world’s second-largest economy. The announcement coincides with Donald Trump’s visit to Beijing and bolsters the reform credentials of Chinese President Xi Jinping less than a month after he cemented his status as the nation’s most powerful leader in decades.

While China has already made big strides in opening its equity and bond markets to foreign investors, international banks and securities firms have long been frustrated by ownership caps that made them marginal players in one of the fastest-expanding financial systems on Earth.

Those who enter China will face plenty of risks, including competition from state-owned players and the threat of rising defaults, but optimists say the opening will create new opportunities for foreign firms and make the domestic financial system more efficient.

“It’s a key message that China continues to open up and make its financial markets more international and market-oriented,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “How important a role foreign financial firms can play remains to be seen.”

Regulators are drafting detailed rules, which will be released soon, Vice Finance Minister Zhu Guangyao said at the briefing in Beijing. Here’s what we know so far:

  • Foreign firms will be allowed to own stakes of up to 51 percent in securities ventures; China will scrap foreign ownership limits for securities companies three years after the new rules are effective
  • The country will lift the foreign ownership cap to 51 percent for life insurance companies after three years and remove the limit after five years
  • Limits on ownership of fund management companies will be raised to 51 percent, then completely removed in three years

Chinese markets took the news in their stride, with the nation’s benchmark Shanghai Composite Index trading little changed after the announcement. Shares of Chinese financial companies were mixed in Hong Kong.

Foreign financial companies applauded the move, with JPMorgan Chase & Co. and Morgan Stanley saying in statements that they’re committed to China. UBS Group AG said it will continue to push for an increased stake in its Chinese joint venture.

Policy makers had hinted at an opening in recent months. Just yesterday, China’s Foreign Ministry said entry barriers to sectors such as banking, insurance, securities and funds would be “substantially” eased “in accordance to China’s own timetable and road map.” People’s Bank of China Governor Zhou Xiaochuan, who has spent much of this year amplifying calls for financial reform, advocated greater competition in the financial sector in June.

The announcement’s timing, on the day Trump ended his first visit to China as U.S. president, may help him claim some credit for the opening and for warmer ties between the two world powers, but the decision was almost certainly the result of long behind-the-scenes planning by Chinese authorities, according to Iris Pang, a China economist at ING Groep NV in Hong Kong.

State Competition

Bloomberg News reported in September that the PBOC was drafting a package of reforms that would give foreign investors greater access to the financial services industry, citing people familiar with the matter. JPMorgan Chief Executive Officer Jamie Dimon said earlier this year that the bank was patiently negotiating with Chinese regulators for structures that would eventually give it full control.

“I believe China has planned for this for a very long time, and now is the right time to announce it because Trump is visiting,” ING’s Pang said. China is likely to push for improved access to U.S. markets for its financial firms, she added.

The relaxed ownership rules follow a period in which most overseas lenders have lost interest in direct stakes in their Chinese counterparts. After sales by Citigroup Inc., Goldman Sachs Group Inc. and others, HSBC Holdings Plc is the only international bank with a major holding — a 19 percent stake in Bank of Communications Co. HSBC has been building its business on the mainland as part of a “pivot to Asia” under outgoing Chief Executive Officer Stuart Gulliver.

Foreign banks held 2.9 trillion yuan ($436 billion) of assets in China at the end of 2016, accounting for 1.26 percent of the nation’s total banking assets, the lowest share since 2003, according to the China Banking Regulatory Commission. They earned 12.8 billion yuan in the nation last year, less than 1 percent of the profits at Chinese counterparts.

Even if they take full control of their China ventures, international financial companies will face multiple challenges. One of the biggest is competition from government-controlled rivals, who currently dominate the nation’s financial system and have longstanding relationships with giant state-owned companies that drive much of China’s economic activity.

Then there’s the country’s record debt burden, which amounts to an estimated 260 percent of gross domestic product after government-run lenders juiced the economy with easy money in recent years to avoid a deep economic slowdown. The country suffered its first onshore corporate bond default in 2014 and has seen at least 20 defaults so far this year. Prominent investors including Hayman Capital Management’s Kyle Bass and billionaire George Soros have warned that the country could be headed for a financial crisis.

Still, there’s little sign of an imminent blowup. Bank earnings in China swelled to 2.1 trillion yuan last year, up four-fold since 2008, and earnings in the securities industry have more than doubled over the same period to 123 billion yuan, according to regulatory data.

Chinese authorities have also taken steps to curb excesses in the banking system, embarking on a campaign this year to clean up some of the nation’s riskiest financial products. The potential influx of foreign capital and expertise could help China manage the aftermath of the credit binge and help prevent a repeat, according to Tom Orlik, the Chief Asia Economist at Bloomberg Economics.

Overseas firms will “calculate the risk-reward margin carefully,” said Raymond Yeung, chief Greater China economist at Australia & New Zealand Banking Group in Hong Kong. “That said, the scale of the market is something they won’t ignore.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Crude Oil

Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm Oil - Investors King

Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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