China Is About to Give Global Finance the Chance of a Lifetime

Foreign-backed securities ventures' profits are forecast to almost quadruple as their share increases five fold by 2030. UBS has already submitted an application to acquire a majority stake in its Chinese venture, becoming the first global bank to take advantage of the latest commitment to open up. Goldman Sachs — which has been quietly laying the groundwork for a beefed up onshore business — plans to significantly increase both headcount and the amount of capital it deploys once it can get control.

Life insurance is the one corner of China's vast financial sector where foreign firms have done pretty well, with market share by premiums advancing for six straight years. The best performers in the years ahead are likely to be those that already have one foot in the door.

"The biggest driver of life insurers' market share advancement could come from existing players such as AIA and bank-affiliated insurers such as ICBC-Axa, and BoCommLife, as they deploy more resources to ramp up their business," said Steven Lam, Bloomberg Intelligence insurance analyst in Hong Kong. "New entrants' contribution to the mix may come after 2020."

As part of the opening measures, China pledged to lift foreign ownership in mutual fund management and futures firms to 51% by June and remove any limit in three years. Given the massive investment pool, if foreign firms can squeeze just a 6% share by 2030, that would give them $1.8 trillion in assets under management.

China's big financial opening won't be without risks and setbacks. The heavy hand of the state will need to recede before foreigners jump in with confidence. Capital account opening — with all the volatility that can entail — will need to resume so investors know they can get their cash out, not just in. Yet in an economy as vast as China, even single-digit market shares will offer sizable profits, meaning the world's financial landscape will never be the same again — just as manufacturing has been transformed since China's WTO entry.

"The direction of policy is clearly the right one, but making rapid progress could be tough to do," says Orlik. "Foreign firms will tread carefully as they approach a Chinese market that's big, complex, and dominated by connected state-owned players."

—With assistance from Zhang Dingmin, Jun Luo, Cathy Chan, Francis Wing Fu Chan, Steven Lam, Sharnie Wong and Tom Orlik (Economist).

— Read China's Insurance Regulator May Get a Hostile Takeover on ThinkAdvisor.

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