BEIJING — China took a major step toward the long-awaited opening of its financial system, saying it will remove foreign ownership limits on banks and asset-management companies while allowing overseas firms to take majority stakes in local securities ventures and insurers.

The new rules, unveiled at a government briefing on Friday (Nov 11), will give global financial companies unprecedented access to the world’s second-largest economy.

The announcement coincides with United States President Donald Trump’s visit to Beijing and bolsters the reform credentials of Chinese President Xi Jinping less than a month after he cemented his status as the nation’s most powerful leader in decades.

While China has already made big strides in opening its equity and bond markets to foreign investors, international banks and securities firms have long been frustrated by ownership caps that made them marginal players in one of the fastest-expanding financial systems on Earth.

As Mr Trump departed Beijing, China’s vice finance minister Zhu Guangyao said foreign firms will be allowed to own as much as 51 per cent of shares of tie-ups in securities, funds and futures industries, instead of the current 49 per cent limit, according to the official Xinhua news agency.

The limits will be phased out in three years.

Foreign ownership restrictions in Chinese banks and financial asset management firms will also be lifted, Mr Zhu said, as he discussed the “consensus” reached during Mr Trump’s state visit, according to Xinhua.

The US and European Union have long complained about a lack of market access in a host of industries, with foreign firms unable to take a controlling stake in Chinese firms.

In the tightly controlled banking sector, overseas companies cannot hold more than 25 percent of a lender’s capital, making it difficult for them to play any major role in the local market.

“Opening up the financial sector in particular could greatly improve the allocation of financial resources and support China’s future development,” said William Zarit, chairman of the American Chamber of Commerce in China.

“These restrictions, and many others yet to be addressed, have been hindering economic activity in China for far too long.”

But Andrew Polk, a founder of China consulting firm Trivium, said Beijing had merely delayed the move until its own financial institutions were so dominant that they would not be threatened.

“They are finally making good on something they’ve been meaning to do for a long time, so I still don’t see that as real progress on key issues,” said Mr Polk.

Mr Zhu also said Beijing will reduce duties on auto imports “at an appropriate pace”, while Vice Premier Wang Yang said foreign companies will no longer be forced to hand over technology secrets as a condition for entering the Chinese market.

The statement by Mr Wang, the Communist Party’s No. 4 official, was made in an article published in the People’s Daily newspaper under his byline.

While other Chinese officials have made similar pledges in the past about foreign technology, Mr Wang’s statement stands out for the seniority of the person making it and its timing.

In the article, Mr Wang pledged to improve the foreign investment environment and treat all companies equally, adding that China will also “strengthen the protection of intellectual property, and strictly crack down illegal and criminal acts such as infringement and counterfeiting”.

The issue of forced technology transfers has become more concerning for foreign companies as Mr Xi accelerates the building indigenous rivals and enacts policies requiring the nation’s information infrastructure to be “safe and controllable.”

In August, US Trade Representative Robert Lighthizer launched a broad probe into whether Beijing forces US companies to transfer intellectual property, such as regulatory approvals to drug makers who shift production to China or requirements that product designs are replicate in China.

During his meetings with Mr Xi on Thursday, Mr Trump had urged China to “immediately” take greater action on market access, forced technology transfers and theft of intellectual property.

Financial institutions who enter China will face plenty of risks, including competition from state-owned players and the threat of rising defaults, but optimists say the opening will create new opportunities for foreign firms and make the domestic financial system more efficient.

“It’s a key message that China continues to open up and make its financial markets more international and market-oriented,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia in Hong Kong. “How important a role foreign financial firms can play remains to be seen.”

Regulators are drafting detailed rules, which will be released soon, Mr Zhu said at the briefing in Beijing.

Foreign financial companies applauded the move, with JPMorgan Chase and Morgan Stanley saying in statements that they’re committed to China. UBS Group AG said it will continue to push for an increased stake in its Chinese joint venture.

The announcement’s timing, on the day Mr Trump ended his first visit to China as US president, may help him claim some credit for the opening and for warmer ties between the two world powers, but the decision was almost certainly the result of long behind-the-scenes planning by Chinese authorities, according to Iris Pang, a China economist at ING Groep NV in Hong Kong.

“I believe China has planned for this for a very long time, and now is the right time to announce it because Trump is visiting,” Ms Pang said.

China is likely to push for improved access to US markets for its financial firms, she added.

The relaxed ownership rules follow a period in which most overseas lenders have lost interest in direct stakes in their Chinese counterparts.

After sales by Citigroup, Goldman Sachs and others, HSBC Holdings is the only international bank with a major holding -- a 19 per cent stake in Bank of Communications.

HSBC has been building its business on the mainland as part of a “pivot to Asia” under outgoing Chief Executive Officer Stuart Gulliver.

Foreign banks held 2.9 trillion yuan (S$594.2 billion) of assets in China at the end of 2016, accounting for 1.26 per cent of the nation’s total banking assets, the lowest share since 2003, according to the China Banking Regulatory Commission. They earned 12.8 billion yuan in the nation last year, less than 1 per cent of the profits at Chinese counterparts.

Even if they take full control of their China ventures, international financial companies will face multiple challenges.

One of the biggest is competition from government-controlled rivals, who currently dominate the nation’s financial system and have longstanding relationships with giant state-owned companies that drive much of China’s economic activity.

Then there’s the country’s record debt burden, which amounts to an estimated 260 per cent of gross domestic product after government-run lenders juiced the economy with easy money in recent years to avoid a deep economic slowdown.

The country suffered its first onshore corporate bond default in 2014 and has seen at least 20 defaults so far this year. Prominent investors including Hayman Capital Management’s Kyle Bass and billionaire George Soros have warned that the country could be headed for a financial crisis.

Still, there’s little sign of an imminent blowup. Bank earnings in China swelled to 2.1 trillion yuan last year, up four-fold since 2008, and earnings in the securities industry have more than doubled over the same period to 123 billion yuan, according to regulatory data.

Chinese authorities have also taken steps to curb excesses in the banking system, embarking on a campaign this year to clean up some of the nation’s riskiest financial products. The potential influx of foreign capital and expertise could help China manage the aftermath of the credit binge and help prevent a repeat, according to Tom Orlik, the Chief Asia Economist at Bloomberg Economics.

Overseas firms will “calculate the risk-reward margin carefully,” said Raymond Yeung, chief Greater China economist at Australia & New Zealand Banking Group in Hong Kong.

“That said, the scale of the market is something they won’t ignore.” AGENCIES