On Jan. 15th, 2020, the U.S. and China signed Phase One of the long-awaited Trade Agreement. A few “big ticket items” have been widely discussed, including the additional $200bn in exports to China, enhancing intellectual property protection and currency valuation. However, there is also an inconspicuous but important element in Phase One. Chapter Four on Financial Services promises U.S. financial institutions greater access to the Chinese market and its consumers. The U.S. has tried and failed for years to get China to open up this area, while itself erecting barriers to make it difficult for Chinese financial firms to access the U.S. market.
Why is this important? Let’s take a look at what’s inside:
Chapter Four stipulates bilateral openings of banking services, credit rating agencies, electronic payments, asset management firms (especially non-performing debt), insurance companies, securities trading firms, fund management firms, and futures services
Many U.S. financial firms will soon receive approvals to take majority stakes in joint ventures or set up wholly foreign-owned operations, rather than being kept at the 49% cap
Requests for U.S. market access by Chinese companies “will be considered expeditiously”, and specifically several well-known Chinese companies including CITIC, CICC, China Reinsurance Group, Union Pay, etc.
Although many of the details of the agreement still need to be ironed out , the agreement itself is an important milestone. Currently, China has the lowest percentage of assets held by foreign-funded banks among major developing countries (Figure 1). For the U.S. financial services industry, this represents a huge opportunity to tap into a massive market. Those at the top of this industry are anticipating this momentum. The guests present at the signing ceremony only validated the significance of the moment: Ajay Banga (Mastercard), Alan MacDonald (Citibank), Al Kelly (Visa), Ken Griffin (Citadel), to name a few.
Figure 1: Percentage of assets held by foreign-funded banks by region. Credit: PIIE.
Why is this good news for Chinese Students Studying in the U.S.?
There are about 500,000 Chinese students studying in the U.S. currently. Other than English language, business disciplines such as finance, accounting, management, and numerous others comprise the number one type of major among these students. Although many of these business students find meaningful jobs in the business and financial sectors in the U.S., most eventually return to China and take up more traditional ”finance” jobs with Chinese commercial banks or securities trading firms.
The new Trade Agreement brings in both capital and expertise that benefit Chinese companies and consumers based in China. Moreover, it benefits many Chinese companies seeking a global footprint. They will all provide western style capital market job opportunities for Chinese nationals at home and in the U.S. in the coming years.
It would not be surprising if American financial institutions started to invest in their own Chinese talent programs to recruit future Analysts/Associates, train them in the U.S., and repatriate them back to China under the OPT program. It could be a huge win-win. On the other hand, a hiring manager at UnionPay, for example, might be thinking of how to source talent in the U.S. market in the next few years to support its inroads in the U.S.
How do you position yourself to be a winner of the trade agreement?
If you are a farmer who knows you will sell more soybeans in the next three years, you will invest in the machinery, people, and related processes to ramp up your production. Likewise, if you are aiming for a career in finance with a leading American financial institution in China or a Chinese company in the U.S., you invest the time and effort to build yourself up as the ideal candidate for these positions, and that matters a lot more than an Ivy League pedigree.
Figure 2 below shows the timetable of the market opening including the very limited number of players that are currently licensed to do business in China in each sector. Foreign financial companies had very little presence in China up until this point. (Credit: PIIE)
For those that are seeking to capitalize on the career opportunities brought about by the Trade Agreement, there are three important steps to take:
Build your financial industry knowledge and develop a career framework. The financial services industry is quite vast and offers many different career paths. Many academic programs are improving their technical curriculum but the practical applications that a student needs in order to be successful in finance are rarely taught in school. Plenty of students can talk about the DCF model but fail to properly articulate the differences between an investment bank and a commercial bank. Some use “risk management” and “wealth management” interchangeably . These types of errors are not going to help you find the right job “fit.” While it is important to learn how to calculate metrics like “WACC” in school, it is equally important for you to develop the big picture view of the capital market structure as well as the key products, services, and functions within this industry.
Seek opportunities to gain real experiences in the U.S. – whether it is an internship, a volunteer opportunity, or a research project. These instances will make you more “hirable” than a peer who only has overseas experiences. More importantly, they give you an opportunity to learn organizational cultures and corporate communication skills. All of these experiences can help build a foundation for your full time job opportunity.
Build your network. Networking is one of the most important ways for Americans to find jobs, and this is definitely the case for the financial industry. So, connect with people, build relationships, and accumulate resources for your future career, here or in China.
If you are in school now, the timing of this deal is perfect. The details of the trade agreement will take anywhere between 1-5 years to complete. By then, you should be the ideal candidate as a graduate with some U.S. work experience under your belt. Recently, the coronavirus outbreak put a dent on the global economy. This has made it is easy for people to overlook the big picture and focus more on the short-term negative development. However, China is due for an economic correction period and the opening of the financial market could be one of the few bright spots for the global economy after all.
Martin Chorzempa, Did the US-China phase one deal deliver a win for US financial services?, PIIE January 27, 2020 https://www.piie.com/blogs/trade-and-investment-policy-watch/did-us-china-phase-one-deal-deliver-win-us-financial
What’s in the US-China ‘phase one’ trade deal? https://www.ft.com/content/a01564ba-37d5-11ea-a6d3-9a26f8c3cba4