Opening China's financial sector to foreign competition doesn’t mean allowing capital to flow in and out of the country without restriction, says Yu Yongding of the Chinese Academy of Social Sciences in a new article for the think-tank China Finance 40 Forum.
The move will allow foreign banks to take deposits in China and issue loans to Chinese companies or China-based international companies, the scholar said. But it won’t allow foreign financial institutions to turn the deposits into US dollars and transfer them onward. Neither will they be allowed to bring US dollars into China and change them into Chinese RMB to be loaned out.
So far there is no sign that foreign institutions will flock to China in significant numbers because Americans remain unsure whether setting up operations in China will be profitable, Yu says. In the long term, the US won’t have a major impact on China's financial sector, he predicts. On the other hand, maybe a bit of competition will pressure Chinese banks into improving their services, he added.
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