MNI INTERVIEW-2: China Needs Orderly Fin Sector Opening: Huang

--Obstacles Must Be Removed For Foreign Firms: Ex-PBOC MPC Member Huang Yiping

     BEIJING (MNI) - China should remove obstacles for foreign firms in its

financial sector, creating a genuine level playing field for all, any opening-up

should be orderly, particularly when it involves lifting controls on the capital

account, Huang Yiping,a former member of PBOC's MPC, told MNI in an interview.

     The urgent need for the opening-up of the sector is obvious, as allowing in

greater foreign capital and expertise will boost efficiency, said Huang, now

deputy dean of National School of Development at Peking University. It would

also help in ongoing trade talks with the U.S., as reform could help improve

relations with trading partners, he said. 

     China has has touted the opening up of the financial sector for many years,

but progress has been limited to date, especially when compared to its fully

liberalised trading sector, Huang conceded. The proportion of foreign banks'

assets in the whole China's banking sector has fallen below 2% compared with

over 4% in 2001 when the country joined the WTO, he noted.

     In Huang's view, that decline was partly due to implicit restrictions on

yuan transactions of overseas institutions. Meanwhile, domestic standards should

be geared closer to international ones, including the credit rating system, to

facilitate foreign investment, Huang suggested.

     --MANAGED CAPITAL ACCOUNT

     Responding to concerns the opening-up could harm financial stability, Huang

expressed cautious optimism given that China's capital account is still managed.

     "The market-oriented financial reform should be pursued in order,

particularly in the final stage, or it would generate risks," Huang noted, such

as those from large and rapid cross-border capital flows in the short-term.

     The removal of capital controls should not be rushed and macro-prudential

regulation, such as adopting a Tobin tax on short-term currency transactions and

foreign currency risk reserve, is still necessary, he said.

     China should take lessons from past reform attempts, such as 2015's

so-called "811 forex reform", when the PBOC abruptly devalued the yuan by 2% and

triggered panic selling of the currency.

     "We could pursue opening in different domains simultaneously, but at the

final stage, the order of actions is important," Huang said.

     --OPPORTUNITIES

     Huang is confident that there will be a big market for foreign investors in

the financial services sector as China opens its doors wider, even with a

slowing economy.

     "Financial products still need to be enriched and relevant mechanisms, such

as seen in the stock market, should be optimized, so these are all opportunities

for foreign investors," Huang noted.

     China will scrap foreign ownership caps in the domestic financial industry

from 2020, a year earlier than previously anticipated, China Premier Li Keqiang

told the World Economic Forum's 'Summer Davos' in Dalian last Tuesday.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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