In response to mounting calls for liberalization of its
lucrative securities industry to foreign investors, the China
Securities Regulatory Commission ("CSRC") revised the
Rules on Establishment of Securities Companies with Foreign
Equity Participation on 28 December 2007 (the "Revised
Rules") and issued the Provisions for the Establishment of
subsidiaries of Securities Companies (Trial Implementation).
The Revised Rules revising the existing rules promulgated on 1
July 2002 (the "Old Rules") became effective on 1
Under the Revised Rules,
foreigner's participation in Securities Joint Venture
("JV") in China need no longer to be established in
the form of a limited liability company. JV can be carried out
in 2 ways as summarized in Article 2 of the Revised Rules
Domestic and foreign shareholders jointly set up a new
Securities JV; or
Foreign shareholders acquire the shares of a domestic
securities company and convert the domestic securities
company into a Securities JV.
Qualifications of the
Compared to the Old Rules, the
qualifications of a foreign shareholders are much lowered. The
track record required for the foreign shareholders is reduced
from ten years to five years and only one of the foreign
shareholders is required to be qualified in the financial
business in its home country. The Revised Rules will allow
institutional investors with more diversified background to
participate in the investment of Securities JV in China which
is good news to overseas investors.
Under the Revised Rules, the
foreign shareholders of Securities JV shall satisfy the
following conditions under Article 7 :-
The home country where the foreign shareholders are
located must be equipped with comprehensive securities laws
and regulatory regimes; and such home country or region must
have signed a memorandum of understanding with CSRC or
authorities recognized by CSRC;
Legally incorporated in its home country and with at
least one of the foreign shareholders being a
qualified entity engaging in financial business in their home
country, and the foreign shareholders cannot transfer its
shareholding in the Securities JV within 3 years;
Continually operating for at least 5 years and no severe
punishment by the regulatory, administrative or judicial
authorities in its home country in the last 3 years;
Compliance with financial targets in the last 3 years
required under the laws and regulations and the regulatory
authorities in its home country;
Good internal compliance policy;
Good reputation and business track record; and
Other conditions deem fit by the CSRC.
Business of a Securities
According to Article 5 of the
Revised Rules, Securities JV can conduct the following
Underwriting and sponsoring of issuance of shares
(including Renminbi-denominated ordinary shares,
foreign-investment shares) and bonds (including government
bonds and corporate bonds);
Brokerage and operation of foreign shares;
Brokerage and operation of bonds (including government
bonds and corporate bonds); and
Other business permitted by the CSRC.
The business of sponsoring of
shares is now opened to the Securities JV in the Revised Rules.
Securities JV, however, still cannot engage in the brokerage of
According to Article 6(3), the
number of the qualified securities professionals in the
Securities JV required is also lowered from 50 to 30.
Key Shareholding Restrictions Remain
Some key shareholding
restrictions are still not lifted under the Revised Rules. The
total accumulated shareholding of all of the foreign
shareholders is still restricted to one third of the
shareholding of the Securities JV, either in the form of direct
or indirect shareholding. Further, the shareholding of at least
one of the domestic securities companies in the Securities JV
shall not be less than one third. It therefore appears that the
opening of the China securities market to foreign participation
will remain a gradual process.
Services If you have any question about the above Rules or other
issues on foreign direct investments, joint ventures, mergers
and acquisitions in Mainland China, experienced lawyers in our
China Business Department will be happy to assist you.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
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