When you open the crack of the door sometimes you can see forever into the future. Recently, the Post reported that Beijing financial regulators said that the 49 per cent restriction on foreign ownership at securities firms, futures companies and fund houses would increase to 51 per cent before being completely lifted in three years. For insurance companies the cap would rise to 51 per cent in three years from 50 per cent, and would be removed in five years.

Foreign banks requested the change for many years as they demanded a more fair landscape for financial services in China.

Only large Hong Kong institutions like HSBC and Bank of East Asia run extensive branches and operations in the mainland. HSBC has been taking domestic, yuan-based China risk lending in property and other commercial areas. Earlier this year HSBC rolled out yuan credit cards on the mainland. American banks are eager to roll out services and products in China.

Foreign bankers have long complained about the joint venture burden of carrying mainland partners. Besides adding little value and operational benefits, the joint venture structure blocked expansion and best practices in areas like product development and risk management. Vital government relationships can be managed without a partner.

Foreign banks have been waiting a long time, basing themselves in Hong Kong to prepare to enter China and build relationships. Bankers ask me: “Do you know any overseas bank in Hong Kong that is actually making a profit?”

Banking is all about risk management, whether it is taking deposits or trading derivatives. Mainland banks still struggle to reform fast enough to keep up with a modern, international environment driven by complex compliance and regulations. They have been unable to manage and price market risk in China as so much lending is based on political direction. Politically based credit activities and poorly supervised lending have resulted in a mountain of non-performing loans that no one can definitively quantify. Introducing foreign competition is an inevitable part of reform.

Financial technology in China has opened up the availability and efficient distribution of consumer financial services in what used to be an ossified, state run banking system. Ant Financial and Tencent Holdings have penetrated in the most opportunistic and lucrative areas where they can scale up payment and credit processing and the retail sales of financial products. Like eBay and Amazon, they quickly figured out that payment and credit processing is the most lucrative part of an e-commerce system. But, that doesn’t solve the banks’ risk management dilemma.

China needs to allow foreign banks to operate freely in China to diversify the domestic credit, balance sheet and operational risks. Its debt market needs to be better developed than the equity markets. The internationalisation of the yuan depends on the creation and liquidity of new financial products that can be distributed around the world. Chinese banks and financial technology companies cannot accomplish this alone.

A vast array of securitised financial products based on assets such as credit card and automobile receivables needs to be created to manage risk. According to the Asia Securities Industry and Financial Markets Association (ASIFMA), China’s securitisation industry has seen significant growth in recent years. As of 2015, statistics from the People’s Bank of China suggest that the total outstanding asset based securities in the domestic market stood at around 300 billion yuan (US$45.35 billion), up from 280 billion yuan in 2014. Mainland regulators are committed to expanding this sector.

American banks are willing to take direct China risk and submit themselves to Chinese law. They know they need to move in-country.

Residual obstacles exist such as domestic capital controls. But, they will evolve as China is experimenting with free trade zones. Eventually, like many of China’s restrictions, they will be worked out as others have been.

For example, one tricky legal area is structured finance or derivatives. Chinese law makes derivatives unworkable in China. Currently, foreign banks will only finance or issue derivatives against a Chinese client with a legal entity in Hong Kong or another common law jurisdiction.

The solution is for a bank to maintain a legal team and office in Hong Kong to deal with local court cases. Meanwhile, the rest of the banking operation moves to Shanghai, Beijing and other Chinese cities. After all, the future of global banking lies in operating in China, not Hong Kong.

Senior executive recruiters say this disintermediation will dramatically shift bank staffing in Hong Kong to China. More mainland candidates need to be hired and trained in China. Hong Kong candidates and graduates must demonstrate more aptitude, ability and interest to operate and live in China. This mass financial migration is bad news for Hong Kong’s role as a financial centre and its expensive real estate.

Hong Kong’s rule of law is overrated in finance because foreign banks want to expand in China and are willing to bypass it to work under Chinese law. Yet, our government talks about it with the same veracity that the French pledged to the Maginot Line- before German tanks swept around its flank.