On February 22, the State Administration of Foreign Exchange disclosed the foreign direct investment (FDI) data of financial institutions in 4Q2015 and 2015. The data shows that the year 2015 saw RMB69.237 billion of the FDI inflow from foreign investors to domestic financial institutions, outflow RMB19.224 billion, and a net inflow of RMB50.014 billion. The year 2014 saw FDI inflow of RMB68.032 billion from overseas investors to domestic financial institutions, outflow RMB16.184 billion, a new inflow of RMB51.848 billion. The net FDI inflow in 2015 is about US$1.8 billion lower than that in 2014. To this fact, Wen Bin, Chief Economist of China Minsheng Bank, said that the economic fundamentals of China remain sound, the size of foreign investment introduced by financial institutions is growing steadily and investment in foreign countries is being accelerated. Driven by the large-scale programs such as the Belt and Road, China’s financial institutions have accelerated the FDI M&A. Therefore, the net inflow size will remain stable to some extent and show a gradual decrease trend.

 

Wen pointed out that the roles of encouraging and introducing foreign investors to make investment in domestic financial institutions of China are showed in three aspects: first, under the background of mixed ownership reform, the financial institutions introducing overseas investment is of great advantage for the diversification of equities and corporate governance mechanism of the domestic financial institutions; second, the foreign investment in the financial institutions is good for improving the management of financial institutions, including the risk management and balance sheet management; third, the investment of overseas investors in China’s financial institutions will serve as a bridge for the domestic institutions to make investment abroad.

 

“With increasing opening-up of the capital projects, China not only supports the foreign investment to hold shares of China’s institutions, but also encourages them to set up independent financial institutions in China. From this angle, the size of foreign investment in China’s financial institutions will increase,” said Wen, “China’s financial market is increasing the opening-up level and scope, with measures such as setting up free trade zones, and encouraging and introducing overseas institutions to make investment in domestic financial institutions. However, the internationalization of China’s financial institutions is not only characterized by the “going global”, but also “introducing in”. With the transformation of China from a foreign trade power to an investment power, the size of introduced foreign investment will grow steadily and the investment in foreign countries will be accelerated, resulting in a downtrend of the net inflow.”  

 

Source: Translated from Invest Guangzhou, Feb. 23, 2016