Wall Street wants to conquer China. Here’s what could go wrong

Wall Street wants to conquer China. Here’s what could go wrong

22.1.2020

Wall Street wants to conquer China. Here’s what could go wrong

China’s financial opening could be a classic case of be careful what you wish for.

The U.S.-China trade deal to be signed Wednesday gives Trump some immediate benefits but allows both sides to put off the most difficult issues. More Coverage With trade detente, is technology war next? Yet, a bevy of hurdles still promise to complicate the efforts of U.S. banks and financial services firms. China is home to the world’s four largest banks by assets, the biggest global fintech company and other formidable competitors. Its tightly controlled system is opaque and arbitrary when it comes to licenses, and the regulation burden is heavy. Recruiting talent has already proved tricky with experienced local executives often preferring state-backed companies. “It’ll be tough for foreign companies to crack the domestic market, owing to how entrenched the incumbents are,” said Nick Marro, the Hong Kong-based global trade lead at the Economist Intelligence Unit. Advertisement The market is vast and difficult to navigate. It’s loaded with more than 130 brokerages, thousands of state-backed lenders, big insurance conglomerates and massive financial technology firms with entrenched customer bases. Industrial and Commercial Bank of China Ltd. — the largest — has more than 600 million retail clients. It and its peers oversee 22 trillion yuan ($3.2 trillion) of wealth management products, making them the nation’s biggest asset managers. Commercial banking presents a sobering picture. After decades of a limited opening, foreign lenders saw their market share fall to 1.3% in 2017 from 2.4% a decade ago, prompting some to cut branches. Citigroup Inc. had 25 outlets in China as of April last year, down by half from the end of 2015, while HSBC Holdings Plc saw its loss in the China retail banking and wealth management unit widen in 2018 from a year earlier, according to their annual reports. Wealth managers have hardly fared better. Since an opening three years ago, BlackRock Inc., Man Group Plc and 20 other firms licensed to run private securities funds for high-net-worth individuals manage just 0.2% of China’s 2.5 trillion yuan in hedge fund assets. Bank of China is one of several large, state-owned Chinese banks. (Mark Schiefelbein / Associated Press) Waiting for approvals to do business can be a tortured affair. JPMorgan and Tokyo-based Nomura Holdings Inc. waited more than 10 months for a green light to take majority control of local securities firms. Morgan Stanley is still awaiting a decision on an application submitted in August. Advertisement The process is also shrouded in secrecy, and layers of regulation. An application can be rejected without explanation or just left sitting with regulators. Debt rating company Moody’s last year shelved its plan to take control of China’s largest ratings company amid regulatory inaction, people with knowledge of the matter have said . The trade deal offers some respite for those struggling through the slow process. China has pledged to review banking licenses on an “expeditious basis,” accept applications from credit card companies within five working days of submission, review and approve credit raters in 90 days, and treat U.S. asset managers the same as Chinese companies when granting licenses. “Having clearer timelines is quite positive, because in the end it boils down to China’s willingness to actually dole out these approvals,” said Marro. The biggest hurdle could be finding enough qualified people. Goldman wants to double its staff over five years, and UBS Group AG is in the midst of a similar plan for its investment banking business. Nomura is looking to get to 500 employees in China by 2023 and JPMorgan has signaled it’s adding staff, expanding by a third its office space in China’s tallest skyscraper. “All of us are trying to get to 100%, so the race for talent is going to be significant,” said Todd Leland, co-president of Goldman’s Asia-Pacific operations outside of Japan, in a recent interview. “Whether or not you’re able to compete and compensate people and find the right individuals that are a fit, that’s by far the biggest challenge.” Many foreign firms have the option to raise their stake in local joint ventures should Chinese law permit. Still, the price tag could be steep. Morgan Stanley last year nearly 15 times the appraisal value to buy a 2% additional stake in its securities venture from its Chinese partner. JPMorgan’s partner ceded control in its asset-management venture at a 33% premium. Advertisement The JPMorgan transaction “looks rather rich,” asset-management research firm Z-Ben Advisors Ltd. said at that time. “Global managers should expect the deal’s metrics will be applied to all that follow.” Capital controls put another damper on the party. While a Chinese official estimates as much as $1 trillion will be plowed into its economy through the financial opening, moving money the other way isn’t as easy. One lawyer in Shanghai cited an example of a major fund that needed almost four months to get approval to repatriate investment proceeds to its headquarters under the Qualified Foreign Institutional Investor program a few years ago, at a time when the yuan was under depreciation pressure. The strength of global firms also lies in their international networks and ability to allow Chinese companies and households to diversify their investments. That path remains largely shut under current rules. The measures in the trade deal “still haven’t significantly touched China’s outbound capital flows, which is where the market see greater near-term potential,” said Brock Silvers, a managing director at Adamas Asset Management in Hong Kong. Constraints on promoting their globally integrated models in China could erode some of the competitive advantage enjoyed by the big-name firms, according to Marro. Restrictions on data could also make it hard in China, with local units forced to operate on different systems than their offshore colleagues, he said. The dispute between the world’s two economic powers is far from over despite the Phase One deal. The Trump administration is looking at restrictions on U.S. investments in Chinese companies and financial markets, a possible new front in the trade war. “There are many issues and challenges facing the two countries — trade, finance, currency, technology and energy,” said Hubert Tse, a partner at Boss & Young law firm in Shanghai, who has advised global financial institutions on JV negotiations in China since 2003. These “need to be ironed out going forward,” he said. Read more: Los Angeles Times

That title right there, is not going to sit well with anyone in China reading the article. They won't be able to do that we need China that make a lots of our thing they going to be on top in the marketplace

Wall Street falls as China virus reaches the U.S.Wall Street lost ground on Tuesday, backing away from record highs as a viral ou... That's just stupid...its not like the black plague is about to ravage the country This is insane I hear Chicken Little “the sky is falling in!”

Here's what every major Wall Street analyst is predicting for Netflix earnings after the bellNetflix reports its fourth quarter earnings report after the bell on Tuesday. FOMO permabull charlatans iron condors ftw.

NBCUniversal’s Peacock Gets an Enthusiastic Reception From Wall StreetYou’d think that the steady drumbeat of streaming services being launched might dull the senses, but Wall Street is rather eager to embrace Peacock. NBCUniversal’s new over-the-top entertainment pl… Streaming “Leonardo” with AidanTurner in the future? 🙏🏻🥰

Netflix Q4 2019: Wall Street split, optimistic on subscriber growth - Business InsiderNetflix posts earnings for its fourth quarter on Tuesday. Some Wall Street analysts are expecting a strong end to the streaming giant's rocky year. Can anyone give me advice on how to stop being so jealous when my gf talks to my friends like I get too jealous and she barely speaks to boys

United beats Wall Street expectations despite ongoing 737 MAX delaysUnited Airlines Holdings Inc on Tuesday beat Wall Street estimates for quarterly... I am never flying on a 737 MAX. Ever. The plane is flawed in it's very design. That's why it needed special software. Those files cannot be fixed without physically redesigning the very structure of the aircraft.

Bloomberg unveils economic justice plan at site of 'Black Wall Street' massacreDemocratic presidential candidate Michael Bloomberg on Sunday released an economic justice plan during a stop in the Tulsa, Oklahoma, neighborhood that was known as 'Black Wall Street' before it was destroyed in a 1921 riot and massacre. This impeachment has always been about one thing: Democrats’ utter dislike for realDonaldTrump . Speaker Pelosi sealed the deal when she declared this president is “impeached for life.” The ad in the paper said 'Big Sale. Last Week.' Why advertise? I already missed it. They're just rubbing it in. 😉 Every average American deserves an economic justice plan. Why give it to just one race when everyone struggles at some point. Bloomberg is promising bs already.



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