China May Raise The Ceiling On Foreign Investment

It is a known fact that China has aggressively courted foreign investment, crediting capital from abroad with helping it become a world economic power.

Since early 2007 however, the Chinese government, has been saying that it needs to protect homegrown companies from unfair competition, they have also thrown a multitude of new regulations at foreign firms seeking to do business in China.

Many believe this may be only a temporary measure to control growth, others worry that there’s a larger political issue: that economic nationalism or even protectionism is rising.

However, despite all the chinese government’s shifting policies on foreign companies, it is possible that the protectionism aspect may be about to change.

Investments by foreign firms in Chinese trust companies are currently capped at 20 percent. Reuters is reporting that according to the well-respected Caijing Magazine, China may raise the ceiling on foreign investment in its trust companies to 49 percent, a step forward for Beijing in opening its financial markets to outside players.

The financial magazine said in its latest issue there was “a very big possibility” that China’s banking regulator would push the limit much higher, though it gave no timeline for such a move.

If the ceiling on foreign caps in trusts is raised to 49 percent, that would match the threshold for outside stakes in Chinese fund management companies. Foreign banks, individually, are restricted to owning 20 percent of a Chinese lender; cumulative foreign investment in a bank is limited to 25 percent.

If the cap is increased to just shy of half, it would make trust companies one of the Chinese financial sectors most open to outside money and reinforce the idea the Chinese government steadfastly maintains that it still embraces the policy known as gaige kaifang – literally, reform and opening up – initiated by Deng Xiaoping in 1979.

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