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Business trends

US banks on back foot in China as global rivals charge in

Nomura, BNP and UBS make inroads while trade tensions hamper American players

Signboards of Chinese and foreign banks, companies and other financial institutions are seen in the Lujiazui Financial District in Pudong, Shanghai.   © AP

TOKYO -- European and Japanese financial institutions are breaking new ground in the Chinese market as U.S. competitors take a back seat due to tensions over trade and intellectual property practices.

Although China relaxed rules on majority foreign stakes in its financial sector last year, with full ownership taking effect after 2021, authorities there have yet to grant such approval for U.S. banks' joint ventures. JPMorgan Chase, for example, applied to establish a majority-owned Chinese securities joint venture in China last May but is still stuck in the application stage.

"The U.S.-Chinese struggle over trade and intellectual property rights appears to be having an influence," said an executive in the Chinese unit of a foreign financial institution.

By contrast, Switzerland's UBS became the first overseas bank to be approved for a majority stake late last year.

Nomura Holdings also applied for permission to set up a securities joint venture in China last year. The Tokyo-based banking group will first launch wealth management services for affluent Chinese to gain a foothold before developing wholesale operations later. Tokyo-based Daiwa Securities Group signed a memorandum of understanding in November to establish a majority-owned joint venture in China and will apply for approval as early as the first half of 2019.

A trader works at the post that trades Goldman Sachs and JP Morgan Chase on the floor of the New York Stock Exchange. American financial firms have been slower than European and Japanese rivals in penetrating the China market.   © Reuters

France's BNP Paribas this month transferred securities depository management operations in Japan from its banking to its securities segment. The bank, anticipating greater demand for Chinese securities, has restructured operations to quickly respond to the needs of Japanese investors.

There is room for Japanese investment to expand in the Chinese market, said BNP Paribas (China) CEO C.G. Lai.

China surpassed Japan last year to become the world's second-largest bond market with a value of about $12 trillion. The majority of yuan-denominated bonds are issued by the central government, local governments, or government-affiliated financial institutions.

Trading of these instruments picked up after foreign investors gained limited access to the market through Hong Kong's Bond Connect scheme, which launched in 2017.

Chinese bonds are expected to appear more widely on global indexes. Institutional investors poured money into Chinese stocks last year after MSCI, a U.S. provider of indexes used by investors all over the world, included China A-shares in its emerging-market benchmark.

China is also taking steps to open up its financial market. BNP Paribas received a license in December to underwrite so-called panda bonds, or yuan-denominated debt issued in the mainland by non-Chinese companies. Britain's HSBC and Standard Chartered Bank, which both have deep ties to Asia, received the same license last year as well.

Japan's MUFG Bank and Mizuho Bank both issued panda bonds last year. MUFG Bank had previously issued yuan-denominated bonds through Hong Kong but was able to do so on the mainland after receiving government approval. Mizuho Bank in October became one of the lead managers for the issuance of dollar-denominated bonds by China's Ministry of Finance, a first for a Japanese bank.

Although there is growing concern about an economic slowdown in China, the world's second-largest economy, the country's financial markets are still relatively undeveloped given the economy's size. Opening up financial markets is expected to be one of the themes discussed at the session of the National People's Congress, China's national legislature, kicking off Tuesday.

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