“If you visited the headquarters of an Alibaba or Huawei you wouldn’t know if you were visiting a Chinese, American or European company. But if you go into the headquarters of a bank, you feel like you’re in old-school communism.” says Stanley Chao, VP of All In Consulting and author of Selling to China.

“It’s an old school network where banks are lending money to old state enterprises just for the sake of propping them up, so they can survive another few years. The banking system is incredibly antiquated, and at some point it will need to help of foreign banks”.

Draft rules issued by the China Banking and Insurance Regulatory Commission (CBIRC) indicate that foreign banks may soon be able to set up wholly-owned subsidiaries on the mainland, though only if engaged in wholesale business.

“China is always trying to prop up its own companies,” says Chao. “Until it reaches a point where it believes it has peaked, and then looks elsewhere - they try to do it on their own, realise they can’t and then take the help of outside companies.”

The Chinese banking industry, says Chao, has become a “very lazy system” where banks lend money to “large, state-owned zombie companies”. The country’s banks lack the ability to cater to SMEs or provide “worldwide financial services” like ETFs. “The government is seeing that and is now saying ‘oh, maybe it’s time we started bringing in some foreign banks’.” Yet China, says Chao, is only interested in bringing in banking expertise from outside the country so that it can import their models without allowing foreign entities gain a proper foothold.

In late November, Swiss bank UBS announced that it had received approval from the China Securities Regulatory Commission (CSRC) to increase its shareholding in a securities joint venture from 25% to 51%. In doing so, UBS became the first foreign bank to gain majority control of a venture in the country. Prior to UBS, both French multinational Axa and German insurance firm Allianz made inroads into China this year, with the former planning a 50% acquisition of its Chinese joint venture and the latter being granted permission to set up a wholly-owned subsidiary.

There has been a cooling of rhetoric between the US and China on the back of a trade war ceasefire signed by both parties at the G20 summit in Buenos Aires - yet China, according to Chao, wants to teach Trump – and the US – a lesson.

“Since the start of [Trump’s] presidency he’s put pressure on China and they want to make changes to appease him,” says Chao. “But they also want to show the president that they’re not totally listening to him.” Rather than allow US companies majority ownerships, Beijing is giving the reigns to European firms, aiming to show the White House that it can be open, just on its own terms. JP Morgan, Goldman Sachs and Morgan Stanley have yet to progress past application stages, according to the Financial Times.

Despite the difficulty of navigating Chinese policy, says Chao, the rewards outweigh the effort. “The sheer population size of China provides an opportunity for foreign companies,” says Chao. “You have a middle class that has grown by 100m in the past 10 years, and is projected to grow by 200m in the next.” Even if banks come in and take the “scraps” that constitute 20-30% of the market, he adds, the figures are still “huge”. What’s more, the younger population in China is tech savvy and knows what a foreign card or bank might be able to offer them. “These companies have marketing … the skills they have outpace a company like Unionpay by an order of thousands. This is where foreign companies can gain an edge over Chinese incumbents.”

Chao believes that a wholly-owned foreign entity will exist in China, but not for at least five or seven years. Chinese banks, he says, still feel inferior when compared to their outside counterparts. “They’re not going to allow any foreign bank to operate independently until they feel they can compete effectively and efficiently. At the moment they’re vastly inferior.”