China agrees to open up financial service industry to foreign companies

China and the United States have agreed upon specific steps for foreign companies to enter China's financial service industry following two-day high-level economic dialogues.

China said it would complete a study of foreign equity participation in the banking sector by the end of 2008 and make relevant policy recommendations.

Foreign-invested companies including banks will be allowed to issue RMB denominated stocks and bonds, while mutual funds administered by Chinese banks will be allowed to invest in the U.S. stock market, according to a statement from the U.S. government.

This has created new opportunities for U.S. firms in a variety of securities business, said the statement.

But China will resume licensing of new joint-venture securities companies and allow foreign securities firms to expand their operations in China to include brokerage, proprietary trading and fund management.

Several foreign firms, including some U.S. firms, are already in advanced stages of establishing new joint ventures, says the statement, without elaborating.

Shortly before the dialogue, China raised the quota for qualified foreign institutional investors, which allow foreign mutual funds to invest in China's domestic stock market, from 10 billion U.S. dollars to 30 billion U.S. dollars.

U.S. Treasury Secretary Henry Paulson called this progress "moderate", affirming that opening China's financial markets to foreign competition strengthens the financial backbone of the Chinese economy. "It's critical to China's goals of spreading the benefits of growth to all Chinese people," he said.

A statement from the Chinese side said the policies should be carried out in accordance with relevant prudential regulations.