Financial and Professional Services
The UK’s well developed services sector ideally place the country to provide expertise to Chinese business’s as services begin to make up a greater portion of the country’s economy. Currently, China is still in the process of liberalising access for foreign companies but progress is being made in a number of areas.
The service industry can broadly be divided into two groupings: financial services and professional services. These can then be further divided into various sub-sectors.
In financial services can be split into:
- Banking (commercial and retail banking, securities and private wealth management)
- Insurance (insurance and reinsurance, broking and asset management)
- Asset management / institutional investment
- Private equity / venture capital
- Alternative finance
Professional services can likewise be broken up into:
- Legal services
- Accounting and tax
- Corporate services
- Management consulting
- Specialist consulting
Generally speaking, the domestic market for Financial Services is dominated by the large State-Owned Enterprises (SOEs), which are given preferential treatment by government policy. As such, dealing with the SOEs and the major regulators will be important aspect of any foreign company’s involvement in financial services in China. Key bodies include (but are not limited to) the regulatory commissions for banking (CBRC), insurance (CIRC) and securities (CSRC), as well as the central bank (PBOC).
In recent years foreign banks operating in China have experienced a decrease in market share in the face of SOE and local competitor’s growth. Nonetheless China’s strong growth has meant that despite a decline in market share there has been opportunity for enormous growth in real terms:
One area where foreign financial services companies have been able to establish themselves more easily is in cross border work. Typically, when working in a foreign jurisdiction, a Chinese investor or acquirer will use the services local advisors and bankers. Britain has positioned itself well as a hub for these third party services for Chinese companies investing into other countries. Another area where foreign companies have found success is in alternative finance platforms which, by their nature, reach beyond the regulated large-cap players directly to SMEs and consumers, such as currency platforms or alternative lending.
Professional Services, which are by and large advisory in nature, are more open for foreign entrants. Again, foreign services are widely used for cross-border transactions of any sort, but many companies including China’s large private sector are increasingly keen to use high quality western companies for some domestic work.
The nexus of Financial & Professional Services can be viewed through the prism of several key themes:
- Domestic reform – the government is continuing the process of reforming the economy and streamlining regulation and the management of SOEs. This can be seen in recent moves such as the creation of the Shanghai Free Trade Zone (FTZ) an area useful for experimenting with changes which may be rolled out to rest of the country. There are also numerous other zones and provincial experiments currently being executed.
- Capital account liberalisation – China has been overt in its aims to relax currency controls, leading to themes such as RMB Internationalisation. This is being done directly through reforms such as QFII / RQFII and QDII / RQDII, but also indirectly through developments such as the Hong Kong-Shanghai Stock Connect. Conversely, the UK has seen the results of such a move as Chinese banks establish themselves increasingly in London.
- Overseas expansion – the overall “Going Out” policy, with Chinese investment and acquisitions overseas, is still a major driver for consumption of foreign services. China has evolved from its historic focus on natural resources through infrastructure and real estate towards an increasing focus on consumer, retail and manufacturing industries, all supported by the government where possible.
All three of these major themes offer the chance for specialised foreign services, both financial and non-financial, to generate revenues through new clients in China as well as previous international clients who are investing in the country.
A firm knowledge of the situation on the ground, including the legal, regulatory and political environment in which the economy is operating, is essential. CBBC is ideally placed to assist foreign firms entering into the Chinese services market, as well as companies looking to establish a business in helping Chinese companies go abroad. We are also an essential forum for meeting and discussing developments and trends within the industry, as well as looking at new business leads.