JPMorgan Secures 100% of it’s Future Dealings in China in 2020

JPMorgan Seeks Full Control of Its China Futures Joint Venture

Published Date: Dec. 30, 2019

JPMorgan Chase & Co. is seeking 100% ownership of its futures joint venture in China, according to a person with knowledge of the matter, making it the first global bank to take advantage of the opening of the nation’s futures market, where transactions topped $30 trillion last year.

The U.S. bank plans to raise its current 49% stake in J.P.Morgan Futures Co., said the person, asking not to be identified because the matter is private.

The onshore venture has applied for a major shareholding change involving more than a 5% stake, according to a Dec. 25 filing to the China Securities Regulatory Commission, which didn’t give additional details.

JPMorgan declined to comment on the shareholding change plan.

Starting with its futures and insurance markets, China will enact the most sweeping changes in decades from early next year to allow the likes of JPMorgan, Goldman Sachs Group Inc. and BlackRock Inc. to expand their footprint in China and compete for a slice of its growing wealth.

Global firms may plow 7 trillion yuan ($1 trillion) to 8 trillion yuan of assets onshore in the next few years, Huang Qifan, vice president at China Center for International Economic Exchanges, said this month.

Overseas companies currently have a tiny presence in China’s futures market which is dominated by nearly 150 local players. JPMorgan set up its joint venture in 2007 while UBS Group AG controls a futures subsidiary through its onshore securities outfit.

Foreign interest has so far been limited by restrictions in China on making unhedged bets against the market and quotas imposed on index and commodity futures. That could change quickly should authorities push forward with a broad swath of changes in the derivatives space.

JPMorgan Chief Executive Officer Jamie Dimon has said that his firm is committed to bringing its “full force” to China. The New York-based firm earlier this year became the first U.S. bank to receive Chinese approval to take majority ownership of a securities joint venture.

— With assistance by Dingmin Zhang, Evelyn Yu, and Lucille Liu

China’s $45 Trillion Market Is Opening Up. Here’s What to Watch in 2020

Published Date; Dec. 29, 2019

China’s big bang opening of its $45 trillion financial industry begins in earnest next year — a step-by-step affair that’s unfolding just as economic strains threaten the promised windfall luring in global firms.

Starting with its insurance and futures markets, the Communist Party ruled nation will enact the most sweeping changes in decades to allow the likes of Goldman Sachs Group Inc., JPMorgan Chase & Co. and BlackRock Inc. to expand their footprint in China and compete for a slice of its growing wealth.

President Xi Jinping is seeking to cushion the world’s No. 2 economy against the steepest slowdown since the early 1990s after a crackdown on risky lending squeezed corporate funding and a trade dispute with the U.S. hit exports. Not only will foreign firms bring with them fresh capital, policy makers expect they will force entrenched domestic players to sharpen their operations and become more responsive to the market.

China is at a stage where regulators and the government are comfortable that local business can handle the threat of foreign competition, according to Paul Schulte, Singapore-based founder of Schulte Research and former head of Asia strategy for Nomura Holdings Inc. Firms like Goldman and JPMorgan “are looking to expand, merge, buy, grow in the next cycle — not this one.”

Foreign financial firms may plow 7 trillion yuan ($1 trillion) to 8 trillion yuan of assets onshore in the next few years, Huang Qifan, vice president at China Center for International Economic Exchanges and former mayor of Chongqing, said this month.

For the global powerhouses, the opportunities are immense barring a major economic slowdown or change of course. Up for grabs is an estimated $9 billion in annual profits by 2030 in the commercial banking and securities sectors alone, according to Bloomberg Intelligence forecasts.

China’s Promise

Gains in market share projected for foreign firms

Sources: Bloomberg Intelligence analysis, China Banking and Insurance Regulatory Commission, Securities Association of China

Here’s a chronological guide to what steps await, what’s at stake, and who’s rushing in.

Insurance

To kick off the new year, foreign insurers can apply to set up 100%-owned units offering life insurance, a segment that accounts for three-quarters of the Chinese insurance market. Joint ventures — of which ICBC-AXA Assurance Co. is the biggest — brought in 8% of the sector’s total premiums last year, but have not been growing as fast as domestic competitors, according to Fitch Ratings.

Local firms dominate the market with their vast distribution networks and millions of agents, led by China Life Insurance Co. and Ping An Insurance (Group) Co. Among those poised to expand their presence is German insurer Allianz SE, which in 2018 got the green light to set up the first entirely foreign-owned insurance holding company.

Others including Cigna Corp. and Standard Life Aberdeen Plc. have indicated no intention to seek control, with Cigna calling its partnership with China Merchants Bank Co. a “winning formula.”

“There’s no best approach clearly in sight” for fully foreign-owned life insurers, said Jimi Zhou, a partner of consulting at PwC China. “The pie is big enough, but it depends on how you want to eat it.”

Futures

Also on the first day of the year, overseas firms will be allowed to set up their own entities to trade futures in a crowded market where nearly 150 local players had combined profits of only 3.4 billion yuan ($485 million) in the first half.

Foreign interest has so far been limited by restrictions in China on making unhedged bets against the market and quotas imposed on index and commodity futures. That could change quickly should authorities push forward with a broad swath of changes in the derivatives space.

Overseas companies currently have a tiny presence in China’s futures market. JPMorgan owns 49% of a joint venture, while UBS Group AG controls a futures subsidiary through its onshore securities outfit.

Asset Management

Asset management is a hotter ticket. Foreigners will be able to apply for licenses to start wholly owned mutual fund management firms in April, or buy out local funds.

What Bloomberg Intelligence Says

“Mutual funds asset growth in China could outpace the world over the next decade. Investment banking and securities revenue could rise as the country’s capital markets develop. Foreign players must navigate challenges including competition for talent and regulatory hurdles.”

— Sharnie Wong, senior analyst.

The stakes are high with households sitting on about 90 trillion yuan in investable assets. But, the competition is cut-throat.

Hedge funds already in business in China have found it difficult to amass assets that gravitate to local high-flyers. Three years after the market was opened, BlackRock, Man Group Plc and 20 other firms licensed to run so-called private securities funds for high-net-worth individuals manage just 0.2% of China’s 2.5 trillion yuan in hedge fund assets.

The competition may be easier to pick off in the broader mass market, where the domestic industry is trying to shift away from guaranteed-return products, mostly offered by state-backed banks. Outstanding wealth products issued by Chinese lenders stood at 22 trillion yuan as of June 30, making them the nation’s biggest asset managers.

Brokerage and Investment Banking

A seismic shift will begin toward the end of 2020 after global investment banks are allowed to operate on their own from Dec. 1.

While some have been doing business in China for over a decade, serving as dealmakers for the nation’s corporate titans across the globe, taking full control will allow Wall Street firms to dictate expansion plans and navigate away from culture clashes with local partners.

They will meet fragmented competition as China’s 131 brokers are comparative minnows with combined assets equal to what Goldman Sachs sits on by itself. Still, a recent push by regulators to forge local investment banking giants means the competitive landscape in China’s $21 trillion equity and bond markets may become more challenging.

For China, the opening is as much a chance to reform financial markets and strengthen local champions as it is an opportunity to address U.S. complaints about the Asian nation being a one-sided beneficiary of trade. With the world’s two largest economies now moving closer to signing the first phase of a trade deal, the slow dismantling of restrictions is set to continue apace.

Addressing more than a dozen delegates including former U.S. Treasury Secretary Hank Paulson and Credit Suisse CEO Tidjane Thiam in Beijing in November, President Xi was clear though that the liberalization of financial services would continue on China’s terms. The nation will remain vigilant to ensure it preserves its “financial sovereignty,” he said.

— With assistance by Evelyn Yu, Lucille Liu, and Dingmin Zhang