Access to China’s retail banking sector has not come easily for foreign operators. The regulatory reforms that came at the end of 2006 were supposed to break down the barriers between them and full participation in the local currency market. In practice, things have not been so easy.
Approval of new products – notably debit cards, which can still only be issued by two foreign banks in the mainland – has been slow. Obviously this has an impact on the services that can be offered in the field of wealth management, an area in which overseas expertise is expected to pay dividends.
“They have product innovation capabilities, but unfortunately they can’t launch many products,” said Samuel Chen, a vice president in the banks and financial services division at JPMorgan Securities in Hong Kong. “So far, their products are not much different from those launched by the Chinese banks.”
While the regulatory environment is strict, banking industry figures hint the approvals process is getting easier.
“As the market develops and as the regulators become more comfortable about the overall situation, things are changing,” said Richard Leung, head of wealth management at UBS Securities, the Swiss bank’s Beijing-based brokerage joint venture. “In the past, almost all new products required prior approval by the regulator, but now they are increasingly products that only have to be reported after they are launched.”
This is borne out by Citibank’s experiences getting new products off the ground. According to Anand Selva, who heads the US lender’s consumer banking operations in China, debit cards were a challenge because they represent a new product category. But for Qualified Domestic Institutional Investor (QDII) products – a category in which Citibank has a track record – regulatory filings can be made up to five days after launch.
Nevertheless, there are still areas in which foreign participation is limited, to the detriment of banks’ local expansion plans. For example, overseas players are allowed to sell products developed by local insurers, but they are currently unable to offer clients direct access to local mutual fund products. Their only exposure to the domestic stock market comes through the Qualified Foreign Institutional Investor (QFII) scheme.
Leung notes that discretionary investment accounts and investment trust-based products – which have license to engage in a wide variety of financial activities – are now both within the foreign banks’ remit. But other, more sophisticated areas, such as securitization and project financing, are off limits.
The complicated option is not always the best one, though, especially in a country that is only just coming to grips with wealth management.
“With structured products, the underlying assets vary – it could be a couple of indices, a basket of stocks or a commodity,” said Citibank’s Selva. “As all of these products are new to the market, we keep them fairly simple. It tends to be a basket of stocks that are all well-known or a group of indices that are easily understood, such as the Jim Rogers commodity index.”