Run Bank Run? The Deposits Foreign Financial Firms Made in China Market (Still) are Not Liabilities
How fast sentiments can change! The much vaunted opening of China’s financial sector to foreign banking, insurance, and securities firms has become a source of angst with observers now wondering if foreign financial players such as Allianz, Citigroup, JPMorgan, Nomura, and UBS will get caught up, directly or indirectly, in China-United States (US) tensions relating to geopolitics, trade, foreign direct investment (FDI), portfolio investment, Covid-19, and the changed status of Hong Kong. Potentially at risk are billions of dollars in FDI such companies have spent to acquire majority stakes in or establish securities joint ventures (JVs), build up their China insurance operations, and begin mutual fund operations.
Moreover, foreign firms might lose the chance to help Chinese firms do initial public offerings (IPOs), to run meaningful asset management, banking, and brokerage operations, and to offer loans and a full menu of financial products. There is reason for cautious optimism, even though there are real threats to the status quo. One is the fact that many of the reasons China has opened itself to foreign firms—e.g., facilitating access to capital, improving the competitiveness of its financial sector, and reducing malfeasance—have not disappeared. Another is that China’s contemporary economic profile—i.e., slower growth and rising unemployment—creates a need for more, not less FDI. Yet another is that pursuant to its Phase I trade deal with the US, Beijing committed itself to open its financial sector. Clouding our ability to bank on the aforementioned forecast is the fact that it is not entirely clear either what sanctions Washington actually will impose on China due to the evolving situation in Hong Kong or how Beijing will respond to such or other US actions. For now, the deposits foreign companies have made on China’s financial sector opening remain assets rather than liabilities.