China is loosening the restrictions on how foreign companies can participate in its financial markets, which are valued at tens of trillions of dollars, and the largest bank in the U.S. is moving quickly to take advantage.
The China Securities Regulatory Commission recently approved JPMorgan Chase's (NYSE:JPM) bid to fully own and operate a futures subsidiary in China. It will reportedly be the first completely foreign-owned futures business in the country.
Previously, large foreign banks could do business in Chinese financial markets, but could only hold a minority stake in the subsidiaries they operated there. For instance, according to China Banking News, JPMorgan previously held a 49% stake in its China futures business through one of its foreign subsidiaries. The rest of it was held by Zhuhai Mailande Equity Investment Management Co. and Jiangsu Van Venture Capital Co.
In recent years, the Chinese government has relaxed these ownership caps, seeking to better integrate foreign finance firms into its financial markets. JPMorgan has also sought permission to take full ownership of its asset management business in China.
Other top finance firms are making similar moves. Recently, China's central bank cleared American Express to begin processing China's currency. And in March, Goldman Sachs and Morgan Stanley both got approval to take majority ownership stakes in their subsidiary securities businesses in China.
China represents a huge opportunity for U.S. financial firms. Its $21 trillion securities market is catered to by more than 130 brokerages, but their average return on equity in that segment fell far short of what U.S. brokerages and related businesses achieved in 2019, according to Bloomberg.