China will allow foreign investors to freely remit their yuan-denominated profits and dividends and pledged to remove all barriers in cross-border trade and investment. The People’s Bank of China (PBOC) said the use of renminbi for cross-border trade and investment will help create a sound business environment and support the country’s Belt and Road Initiative. “Chinese banks should ensure that foreign investors can freely remit yuan-denominated returns from profits and stock dividends,” it said. The move will encourage foreigners to use the Chinese currency for direct investments into the country.

The central bank also now permits Chinese companies to transfer funds raised from overseas bond and stock issuance back home, based on their actual needs, and promised to further simplify the necessary procedures. The PBOC move came after the Central Economic Work Conference reiterated in December 2017 to “push forward a new pattern of all-round opening up to pursue mutual benefits with the rest of the world”. Meanwhile, the China Foreign Exchange Trade System (CFETS), a unit affiliated with the PBOC, is allowing qualified foreign banks to directly participate in regional transactions in the interbank foreign exchange market. Previously, these banks could purchase yuan only through domestic agent banks. The CFETS said it will promote transactions in the interbank foreign exchange market and improve efficiency of bilateral settlement between yuan and other foreign currencies.

Li Haihong, Researcher at the International Monetary Institute of Renmin University of China, said that the moves would help promote the use of yuan in trade settlements and payments, and encourage foreign companies and other central banks to hold the Chinese currency as part of their foreign exchange reserves. “It will provide new opportunities for the internationalization of the yuan,” said Li. “It also reflects Chinese monetary authorities’ confidence to further open the capital account in the future, ” he added. The central bank will also make it easier for Chinese workers to send their overseas earnings back to the country, while allowing foreigners to freely remit their legal income earned in China back home, the China Daily reports.

Domestic companies repatriating overseas profits will be allowed more leeway to deduct taxes paid abroad from their taxable incomes. On December 28, the Chinese government also temporarily exempted foreign investors from being taxed on profits from Chinese investments provided these proceeds were reinvested in industries high on the government’s priority list. The new measure puts in place a system that encourages foreign funds to remain in the country and makes repatriation attractive for Chinese companies. Both tax breaks have been made effective retrospectively from January 1, 2017.

On the other hand, new limits have been imposed on the amount of money Chinese citizens can withdraw from their Chinese bank accounts while abroad. Individuals will be allowed to withdraw a maximum of CNY100,000 a year, regardless of how many separate bank accounts or ATM cards they have, the State Administration of Foreign Exchange (SAFE) said. The current cap on daily withdrawals remains unchanged at CNY10,000 per card.

China’s Vice Minister of Finance Zhu Guangyao

China will raise foreign ownership limits in domestic financial firms and grant foreign investors greater access to the financial services market, Zhu Guangyao, Vice Minister of Finance. The country will raise the limit on foreign ownership in joint-venture firms in the futures, securities and funds sectors to 51% from the current 49%. At the same time China has also urged the United States to loosen restrictions on exports of high-tech products to China, comply with Article 15 of the Protocol on China’s Accession to the World Trade Organization (WTO), treat Chinese investors in the U.S. fairly, facilitate China International Capital Corp’s application for an independent financial business license, and be discreet in using trade remedy measures against Chinese exports to the U.S.

A change of 1% in stake holding can fundamentally modify the corporate governance of joint venture life insurers in China and attract more foreign investors, but it is unlikely to make them major players in the country’s vast insurance industry, according to industry watchers. After three years, foreign players will be able to hold a 51% stake in such joint ventures, currently capped at 50%, Zhu said in Beijing. After five years, the cap will be scrapped. AIA, Allianz and Manulife are the only companies currently exempt from the 50% limit – AIA has a 100% owned subsidiary and the other two have a 51% stake in their joint ventures.

Last year, JP Morgan withdrew from its joint venture with First Capital Securities. Jamie Dimon, JP Morgan’s Chief Executive and Chairman said he would like to have operational control of future investment banking activities in China. “JP Morgan welcomes any decision made by the Chinese government that looks to liberalize its financial sector further,” a Spokeswoman said in a statement.

In June, HSBC became the first bank to own 51% of its mainland joint venture, under the Closer Economic Partnership Agreement (CEPA), a free-trade agreement between Hong Kong and the mainland designed to promote financial services. UBS reiterated its desire to own 51% of its joint venture, but analysts cautioned that majority control by itself was not a magic bullet.

“For joint venture life insurers, there is a prevailing headache that derives from the 50:50 stake holding structure, as no party has the decisive say, leading to unnecessary infighting, waste of resources, and which hinders the implementation of strategy and operation of a joint venture life insurer,” said Wesley Cui, General Manager, China Insurance Consulting at Willis Towers Watson.

Insurance premiums in China grew by 28% last year, their fastest pace since 2008, with the country contributing to about half of all premium growth globally. At present, there are 28 life insurance joint ventures in China, accounting for 7% of the market share as far as premium is concerned.

China is creating a broad-based platform for artificial intelligence-powers fintech to drive the country’s economic development, according to keynote speeches and panel discussions at Finnovasia, part of the Hong Kong Fintech Week focusing on the future of AI in finance. China has made significant headway in AI, based on advances in computer-processing power, algorithms and data collection used by academic researchers and major internet companies such as Baidu, Alibaba Group Holding, Tencent Holdings and JD.com.

In July, the Chinese government set goals to build a domestic AI industry worth nearly USD150 billion in the next few years, and to make China an “innovation center” in this field by 2030. “The U.S. has better scientists doing research in AI, but as to the union of AI and financial technology, China is leading and will continue to dominate in the future,” Chan Ka-keung, Adjunct Professor of Finance at the Hong Kong University of Science and Technology, said during a panel discussion. Chan said China’s success was helped by consumers enthusiastically embracing new technology. Moreover, they are not reluctant to share relevant data with trusted service providers, such as those in online search, e-commerce and social media.

At the Finnovasia panel discussion, Ling Kong, Chief Technology Officer (CTO) at online lending company Dianrong, pointed out that the company serves millions of customers every month, each bringing plenty of data sets that are used for making decisions. Chan also said the rapid growth of new fintech services, such as peer-to-peer lending marketplaces and online money market funds, was made possible by a lack of innovation by the country’s traditional banks in addressing the needs of not only the average consumer, but also many small and medium-sized enterprises.

High-flying start-up Ant Financial Services Group, which runs online payments service Alipay and money market fund Yu’ebao, has made AI a key driver for expanding its businesses and improving customer service. Donald Feagin, Senior Vice President of Global Business at Ant Financial, said in a keynote speech that the company’s customer service was “powered by AI technologies like natural language processing, machine learning and voice recognition”. “The possibilities are really endless – of what we can do here,” said Feagin, a former Senior Partner at Goldman Sachs. He added that AI – in particular, deep-learning technology – had helped to detect fraud and anticipate issues at Alipay, which has about 520 million users. “So our fraud loss today is less than one in 1 million,” said Feagin. “This is a fraction of the fraud losses of other global payments players.

“Right now, the AI market is dominated by all these big companies – the Googles, Facebooks and Apples of the world,” Eberhard Schoeneburg, Lead AI Adviser at global consulting firm PwC, said, adding that “the future of AI will be driven by start-ups, including early-stage companies that have never been heard of,” the South China Morning Post reports.

Even as China bans bitcoin and other cryptocurrencies, the People’s Bank of China (PBOC) is developing its own digital currency. It can help bring down transaction costs, extend financial services to rural areas and increase the efficiency of monetary policies, according to Yao Qian, who leads the research at the PBOC. “The development of the digital economy needs a central bank-issued electronic currency more than ever,” Yao said at forum in Beijing. “It’s crucial to speed up the research and issuance.”

Yao’s remarks are consistent with those of central bank Governor Zhou Xiaochuan, who said earlier this year that the PBOC was looking into its own digital currency. But it is also in stark contrast to the central bank’s harsh and relentless crackdown on any form of privately issued, or decentralized digital currency. China has banned any attempt by companies to raise financing through initial coin offerings (ICOs), and stopped bitcoin exchanges from operating. Already, Chinese financial institutions have been prohibited since 2013 from holding any form of digital currency.

Digital legal tender will be the “jewel in the crown of fintech,” as the fusion of technology with finance is called, and will have a sweeping impact on the future of the world’s financial system, Yao Qian said.

“Virtual currency is easier to trace, allowing the central bank to monitor its velocity and the whereabouts of the money and improve its monetary policies accordingly,” he said, adding that big data, artificial intelligence and machine learning will also play a bigger role in analyzing risks and strengthening regulatory intervention, the South China Morning Post reports.

The Governor of the People’s Bank of China, Zhou Xiaochuan, has lashed out at local governments, saying their constant calls for looser monetary policy are the root cause of the country’s financial fragility. Zhou, who has been PBOC Governor for the last 15 years, said the central bank had been expected to turn on the cash taps to support growth in good times and in bad.

“In the good times all industries and local governments enthusiastically pursued rapid growth and demanded the central bank ease money supply,” Zhou wrote in an article on the central bank’s website. As a result, financing activities boomed, credit supply increased, and market players started to be overly optimistic, “generating asset price bubbles”. But as risks mounted and financial markets came under pressure, all sides called for the PBOC to come to the rescue with looser monetary policy, Zhou wrote. He said this distortion of monetary policy, mainly from local governments eager to speed up development, was a source of systemic risk because of the high financial leverage and excessive corporate debt it induced. Zhou called for broadened equity funding and direct finance to cut corporate leverage and eliminate “zombie” companies. He also warned that it was very difficult for regulators to find a big enough window of time to “right the wrongs”.

Zhou is expected to step down in the coming months. He is credited with steering the country’s robust economic growth in the past 15 years, freeing up interest rates at home and earning the yuan nominal international reserve currency status abroad. But he has also been criticized for allowing the economy to be flooded with money – China’s broad money supply, M2, surged from CNY18.5 trillion at the end of 2002 to CNY165.6 trillion at the end of September, the South China Morning Post reports.