Yi Gang arrives at the Boao Forum for Asia Annual Conference 2018. Photo: AFP
Yi Gang arrives at the Boao Forum for Asia Annual Conference 2018. Photo: AFP

Promises. Promises. Promises. Finally, it appears the wait is over after the People’s Bank of China Governor Yi Gang came up with a timeframe for a raft of reforms in the financial sector, which were proposed last year.

The decision was announced less than 24 hours after President Xi Jinping’s keynote address at the Boao Forum on Hainan Island in southern China.

Known as ‘Asia’s Davos’, Xi pledged to open up further the world’s second-largest economy in a speech seen as an attempt to defuse the ticking time bomb with the United States over a mushrooming US trade deficit and intellectual property rights issues.

But Yi’s comments on Wednesday to push ahead with plans to allow foreign financial firms to compete on equal terms with Chinese companies has prompted the state-owned media to coin the phrase “Xiplomacy”.

“The greater detail on the timing of implementation may indicate China’s desire to avoid an escalation in trade restrictions and to boost market confidence that the announced measures to open up the market will be adopted in practice,” Moody’s, one of three major credit rating agencies, pointed out in a note.

Latest developments

At a panel discussion meeting at the Boao Forum, the new central bank head Yi outlined the latest developments rolled out by Beijing. These included:

Boosting the daily Shanghai-Hong Kong stock connect quota from 13 billion yuan (US$2.06 billion) to 52 billion yuan ($8.27 billion) from May 1;

Removing foreign ownership caps on banks and financial asset management companies;

Allowing foreign banks to set up branches and subsidiaries at the same time;

Raising the foreign ownership ceiling to 51% for brokerages, fund managers, futures companies and life insurance firms.

While there is nothing new in the final three proposals, which were announced last autumn, the date is significant. According to Yi, the reforms will be brought in by June. Other tweaks will follow, he confirmed, in a step-by-step process, including a stock trading tie-up between Shanghai and London later this year.

“I think that the Chinese philosophy is gradualism,” Yi said in response to Bloomberg News’ question that these financial reforms represent a “Big Bang.” “I’ll be very cautious. I even don’t want to use the word ‘bang,’ no matter if it’s big or small. I think this is a prudent, cautious, gradualist move.”

Trading partners, such as the US and the European Union, as well as foreign financial firms, have constantly complained about the slow pace of reforms and the challenges they encounter in doing business there.

Promises have been made and quickly forgotten. The European Union Chamber of Commerce in China succinctly summed up the problem last year when it stressed that companies were suffering from “promise fatigue.”

Another drawback is that overseas businesses make up a tiny fraction of the industry and face major hurdles once they are established.

“China is opening sectors where they already have a distinct advantage or a stranglehold over the sector,” Jonas Short, the head of the Beijing office at Everbright Sun Hung Kai, a leading finance firm, told Reuters, citing a banking industry dominated by major domestic players.

Prolonged migraine

Still, this has been a stellar 24 hours for Xi and “Xiplomacy.” Despite the trade spat, his key priority has always been to solve China’s debt headache, which is threatening to turn into a prolonged migraine.

Domestic economic issues, not a tit-for-tat squabble with the White House about tariffs, will dominate his second-term agenda.

At least, there were signs that his Boao speech had hit the right notes after last week’s war of words, which resulted in Beijing matching US President Donald Trump’s move to impose planned tariffs amounting to $50 billion on an array of imports.

Following Xi’s address, Trump used his favorite media, Twitter, to tweet: “Very thankful for President Xi of China’s kind words on tariffs and automobile barriers … also, his enlightenment on intellectual property and technology transfers … We will make great progress together!”

Opening up the financial sector and creating a level playing field would be a good start.

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