China Adds Flesh to Bones of Plan for Big Bang Financial Opening

(Bloomberg) — People’s Bank of China Governor Yi Gang gave more details on plans for an historic opening of the nation’s financial sector, following President Xi Jinping’s pledges a day earlier that helped ease trade tensions with the U.S. and lift global markets.

The daily Shanghai-Hong Kong stock connect quota will quadruple to 52 billion yuan ($8.3 billion) from May 1, Yi said Wednesday at a panel discussion at the Boao Forum for Asia. More financial-sector opening will be realized by June 30, he said, citing a range of items from limits on foreign insurers to ending foreign ownership caps on securities companies.

The fresh details from the new central bank chief may help further ease trade tensions after Xi renewed pledges to open sectors from banking to auto manufacturing drew praise from U.S. President Donald Trump. When asked by Bloomberg News whether the financial reforms represented a “big bang,” Yi characterized them as “gradualist.”

“I think that the Chinese philosophy is gradualism,” Yi said. “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.”

Yi’s predecessor, Zhou Xiaochuan, used one of his last public appearances to urge the world’s second-largest economy to “be bolder in opening up.” Wednesday’s comments add specifics to those and other recent pledges by Chinese officials to increase access to its financial system.

“This would appear to confirm China’s commitment not only to greater openness and access to the Chinese economy but to an acceleration of that process,” Callum Henderson, a managing director for Asia-Pacific at research firm Eurasia Group in Singapore, said of Yi’s remarks. “This should be well received by markets.’

Stocks in Shanghai rose as concern over the U.S.-China trade dispute eased. Hong Kong Exchanges & Clearing Ltd., operator of the city’s bourse, rose as much as 3.7 percent.

Yi succeeded Zhou last month to became PBOC governor, sharing responsibility for steering the institution with Guo Shuqing, the Communist Party’s secretary at the central bank who concurrently also serves as chairman of the banking and insurance regulator.

Foreign ownership caps on securities companies, fund managers and life insurers will be fully scrapped in three years, Yi said. He added that banking regulation will need to be strengthened during the opening-up.

“It’s encouraging that the Chinese government is pledging further opening up and advancing reforms at Boao despite the anti-market and anti-globalization trade war rhetoric with the U.S.,” said Tao Dong, vice chairman for Greater China at Credit Suisse (SIX:) Private Banking in Hong Kong. “Pushing for further reforms helps the Chinese economy and the global economy.”

Monetary Policy

On monetary policy, Yi said the interest-rate differential with the U.S. is “in a comfortable range” and that deposit and lending rates will become more market determined. He reiterated that the central bank will continue with prudent monetary policy.

While the PBOC is expected to keep its benchmark lending rate unchanged this year, according to economists surveyed by Bloomberg, it could guide interbank interest rates higher as it seeks to contain leverage and defuse risk.

That’d keep China’s monetary policy broadly in line with that in the U.S., reducing pressure on the value of the yuan and capital outflows, as the Federal Reserve plans two more interest rates hikes this year. Meanwhile, a recovering global economy and robust demand may accelerate the pace of monetary policy normalization in Europe and Japan.