Progress and Challenges during the Two-Way Opening Up of Finance in China
The 5th Plenary Session of the 19th CPC Central Committee made a major decision and deployment to promote two-way opening up of finance. It has a strong guiding significance for the next period. With continuous introduction of higher-level opening-up policies as called "the bringing in"，foreign investors continue to be optimistic about China’s financial market and boost their investment. Meanwhile，as Chinese financial corporations carry out foreign investment and financing business，they extend their global presence，and serve "the going out" of Chinese enterprises and renminbi internationalization. Entering the new era，the "going out" and "bringing in" of China financial industry confront new challenges. At present，the international economic and political pattern is undergoing profound changes，Sino-US relations are experiencing new challenges. The risks and uncertainties of international financial cooperation are rising，the financial regulatory review of western investment has been constantly tightened，and the prospect of economic recovery and geopolitical risks in the post epidemic era are difficult to predict. This paper focuses on the main problems and challenges faced by the two-way financial opening，not only from the "bringing in" to see the relevant demands of major international institutions but also from the "going out" to see the difficulties and common points faced by domestic institutions，and puts forward relevant policy suggestions.
Major Achievements have been made in the two-way opening up of the financial sector
"Bringing in" accelerates in recent years
First，foreign investors are increasing the investment in Chinese financial market. Foreign institutions mainly participate in the domestic financial market in three ways，including interconnection mechanism (Shanghai-Hong Kong stock connect and Shenzhen-Hong Kong stock connect)，QFII and local enterprises. With the steady improvement of China's opening-up level，foreign investors’ confidence in China's financial market has been increasing. According to Wind，foreign holdings of A-shares have reached 3.47 trillion yuan by the end of August，equivalent to 4.7% of the outstanding market value，and foreign holdings of inter-bank market bonds have reached 3.41 trillion yuan by the end of August，accounting for 3.5% of the total custody value in the market. Government bonds and policy bank bonds account for about 85% of foreign investors' portfolios，and some 297 panda bonds have been issued with a total amount of 493.5 billion yuan. The issuers are from Asia，Europe，and North America. The types of panda bonds have expanded from international development institutions to foreign government，financial firms，and non-financial enterprises.
Second，foreign financial firms actively set up local branches in China. With the steady implementation of financial policies such as relaxing the restrictions on the foreign shares，foreign financial firms begin to set up more branches in China and the pace of the establishment of wholly owned and joint ventures continue to accelerate. By the end of August，44 joint venture fund companies and two wholly foreign-owned fund companies have been established，the number of foreign holding securities companies has increased to nine，and four foreign controlled wealth management companies have been approved. JPMorgan Chase Futures and Allianz (China) Insurance have become the first wholly foreign-owned futures company and wholly foreign-owned insurance company respectively.
"Going out" sees a rapid progress during the past years
First，the depth and breadth of foreign financing business continue to improve. As the end of June，oversea corporate bonds issued by Chinese firms has steadily increased，of which the cumulative issuance of USD and EUR denominated bonds are about US$1.5 trillion and EUR 85 billion respectively. Chinese financial firms have issued 153 bonds in developed markets (mainly in Luxembourg and London) with the issuance value about US$64.1 billion，and USD and EUR denominated bonds accounting for 67% and 20% respectively. There are overseas 23 IPOs by Chinese financial firms，raising about US$ 9.07 billion，accounting for nearly 50% of IPOs in the US and UK markets respectively. Four Global Depositary Receipts (GDRs) have been issued under the "Shanghai-London Stock Connect" mechanism，actively subscribed by international investors，and raised US$ 5.84 billion.
Second，Chinese financial firms focus on serving enterprises to "go out". There are 41% and 31% of QDII portfolios being invested in the US and Hong Kong stock market respectively，and the assets are closely linked to the Chinese economy. "Going out" funds prefer investment-grade bonds，high-yield bonds，and perpetual bonds. Commercial banks usually use own cross-border fund pool to conduct investment，while other financial institutions prefer to make use of QDII and RQDII quota.
Third，Chinese financial firms actively carry out global layout by setting foreign branches or M&A. This also helps serve local non-financial enterprises to do business global and promote renminbi internationalization. However，Chinese financial firms are less competitive than their international counterparts in business such as investment banking，asset management and serving high wealth customer. Their overseas business is generally less profitable than the domestic business.
Attention should be paid to the problems of two-way opening up in the financial sector
"Going out" is facing the complex international situation in the post COVID era
First，uncertainty increases as the traditional Sino-US cooperation pattern is challenged. In the context of more Sino-US co-opetition (known as competition and cooperation)，Chinese financial firms are more sensitive to the political sanctions risks initiated by the US，and the subsequent extreme situation response mechanism are often accompanied with a high cost.
Second，global macroeconomic risks have risen. In the post epidemic era，global economic recovery is more challenging. With the risk of potential inflation and taper decision in the US is rising，the uncertainty of the financial market increases，and this brings more difficulty for Chinese firms to conduct the financing. At the same time，developed economies continue to implement quantitative easing monetary policy，and this leads to higher credit risk and lower asset return. In the coming period，as the Federal Reserve begins to turn to taper and tighten the liquidity，emerging markets would be greatly affected.
Third，the risk of government review continues to increase. In recent years，the EU has issued several compliance regulations on anti-money laundering，taxation，capital，liquidity and data protection，and financial supervision has been continuously tightened. The latest EU Capital Requirements Directive stipulates that the group of third country financial firms shall set up intermediate parent undertaking within the EU within the specified time，and some globally important banks will be directly supervised by the ECB. To prevent arbitrage，the EU has increasingly tightened regulations on the subsidiary banking of third country branches，which has a great impact on the operation of China's financial firms in Europe. Brexit affects Chinese institutions’ prediction of the prospects of British and European financial markets. In the short term，Brexit has limited interference on the exhibition and license application of Chinese financial firms in the UK and Europe，but the follow-up UK-EU financial service agreement，the new regulatory policies，and the changes in the credit risk of European customers will have a continuous impact on China's financial branches in these areas.