Germany presses China to opens its financial sector

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Germany is pressing China to follow through on nearly two-decade-old promises to open its financial sector to foreign competition. In a January 18 dialogue in Beijing, the two countries vowed to open their respective markets wider to each other's banks and insurers. Reportedly, Beijing and Berlin signed three agreements: one between the two central banks, one regarding cooperation in securities and futures trading, and one to examine banking regulations together.

“It is important that, contrary to recent trends that we can observe elsewhere, we are seeing progress in our cooperation,” German Finance Minister Olaf Scholz was quoted as saying by Reuters. He added, "A level playing field in terms of market access for banks and insurers is important."

When China joined the World Trade Organization (WTO) in 2001, it vowed to remove barriers that protected its banking, securities and insurance markets from foreign competition. That hasn't happened. Foreign banks in China are largely restricted from retail banking or lending to local corporates. Foreign securities and insurance companies have a minimal presence in the China market.

For Beijing, the deal with Berlin is a modest public-relations victory, highlighting President Xi Jinping's professed commitment to free trade. To be sure, Xi appears decidedly less protectionist these days than U.S. President Donald Trump, who has boasted that he is "Tariff Man." We're looking forward to the launch of "Tariff Man" ball caps. Meanwhile, analysts and investors will be watching closely to gauge Beijing's sincerity about financial reform. This is not the first time the Chinese government has promised a more inclusive financial sector.

At the same time, Germany is keen to develop Frankfurt as Europe's premier offshore renminbi hub as London exits the European Union along with the rest of UK. When Brexit was first decided, many analysts forecast that global finance would decamp from London to Paris or Frankfurt. So far, that hasn't been the case. London remained in 2018 both the top European and overall offshore yuan trading center. In a September 2018 report, the City of London said that London accounted for nearly 39% of daily FX transaction volumes in offshore renminbi, ahead of No. 2 Hong Kong (about 27%) as of the quarter ended June 2018.