China: China Further Opens Up Its Financial Services Sector

Last Updated: 11 September 2019
Article by Roy Chan, Heng Loong Cheong, Qiang Li, James Chang and Michael Huang

On 20 July 2019, the Office of Financial Stability and Development Committee (the Office) under the State Council published the Relevant Measures for Further Opening Up the Financial Sector (the 11 Measures).

In announcing the 11 Measures, the Office said “it is better to launch them earlier and quicker instead of later and slower”. The adoption of the 11 Measures represented China’s latest efforts to bring in more foreign investment to boost its economy, amid the challenges posed by global economic and business environment. It is part of a broader scheme to open up the financial sector, and comes after the relaxation of restrictions on foreign investment in the financial sector announced in 2018 and the adoption of China's Foreign Investment Law in March of 2019. Under the earlier 2018 reforms, China Banking and Insurance Regulatory Commission (the CBIRC) raised the foreign ownership cap in life insurance companies from 50% to 51%, removed foreign ownership caps in Chinese banks, and allowed foreign owned insurance brokerages to expand their business scope to the same as that of domestic insurance brokerages.

In recent years, China has gradually deregulated foreign direct investment in most sectors. In 2016, the country abolished the old approval system, which requires governmental approval for all kinds of foreign direct investments, replacing it with a filing regime under which all sectors are opened for foreign direct investment except for specific industry sectors included on a "negative list". Subsequently, the Chinese government has shortened the negative list every year. The 11 Measures signals China’s move to open up one of the few sectors that had traditionally been carefully guarded by the Chinese government, the financial services sector.

The initiatives, on top of bringing in more foreign capital, will also help enhance competition and make domestic financial services providers more efficient by making them compete on a more level playing field with their foreign counterparts.

A broad spectrum of China’s financial services sector is covered under the 11 Measures, which makes the financial services sector more open and easier to access for foreign investors. Below is a summary of the highlights.

Insurance: Foreign insurers are no longer required to meet the criteria of 30-year’s operational experience in the insurance business. Foreign investors can now own more than a 25% equity stake in insurance asset management companies.

Pension Fund: Foreign pension funds are allowed to establish or participate in Chinese pension fund management companies.

Removing Foreign Equity Cap Earlier: The foreign equity ownership cap (currently 51%) in securities, fund management, futures, and life insurance business will be abolished altogether in 2020, one year earlier than the timeframe announced by the Chinese government in 2018.

Asset Management Companies: Foreign asset management companies are encouraged to invest in asset management subsidiaries established by commercial banks. Foreign asset management companies are allowed to set up foreign-controlled asset management companies with subsidiaries of Chinese banks or insurers.

Credit Rating: Foreign rating firms can now rate all bonds traded on China's interbank market and exchanges.

Bond Market: Foreign invested banks can now apply for type-A lead underwriting licenses in the interbank bond market. The 11 Measures also pledges to further facilitate foreign institutional investors’ investments in the interbank bond market.

Currency brokerage: The 11 Measures pledges to support foreign investors to establish wholly foreign-owned currency brokerage companies in China. Wholly foreign-owned currency brokerage firms have been theoretically possible under an existing pilot program, but no such firm has been approved since the pilot program was launched in 2005.

Additionally, on 1 May 2019 the CBIRC abolished the old requirement that foreign insurance brokerages to have operated for at least 30 years and have total assets worth USD200 million before they can conduct business in China. According to the CBIRC, the purposes of relaxing these requirements was to encourage comparatively young but high-quality and competitive foreign insurance brokerages to enter the Chinese market and enhance mutual understanding and cooperation between them and their Chinese counterparts.

The publication of the 11 Measures represents a welcome development for foreign financial services providers. However, they are not self-executing and relevant Chinese regulators will need to draft and implement new rules to make the 11 Measures workable on a practical level.

Foreign firms can also expect Chinese regulators to treat all foreign firms more equally compared to their Chinese counterparts, and become more efficient in processing their applications.

Some foreign firms have already benefited from previously announced polices as highlighted below. More multinationals will likely benefit from the new 11 Measures.

  • UBS AG has received Chinese government approval to increase its stake in its UBS Securities Co Ltd joint venture to 51%, making the joint venture the first Chinese securities company controlled by a foreign investor.
  • J.P. Morgan and Nomura both received Chinese government permission to establish joint venture securities firms with a controlling foreign stake of 51%.
  • American Express has received Chinese government approval to establish the first RMB bank card clearance joint venture with a 50% stake.
  • Allianz has received approval to establish the first wholly foreign owned insurance holding company.
  • Standard & Poor has established the first wholly foreign owned credit rating firm in China. Moody's is in the process of setting one up.

More recently, Goldman Sachs has applied to have its ownership stake in its China joint venture Goldman Sachs Gao Hua Securities raised to majority control.

There is no doubt that the 11 Measures will generate further inflows of foreign capital into China’s financial services sector, and we expect to see a surge, both in acquisition activities involving existing Sino-foreign joint ventures in which the foreign partner owns a controlling stake and in greenfield investments.

Appendix - Outline of the 11 Measures

  1. Foreign-invested credit rating agencies can rate all kinds of bonds that are traded on China's interbank market and exchanges.
  2. Foreign financial institutions are encouraged to participate in the establishment of or investment in asset management subsidiaries established by Chinese commercial banks.
  3. Foreign asset managers are permitted to partner with the subsidiaries of Chinese banks or insurers to establish foreign-controlled asset management companies.
  4. Foreign financial firms are allowed to set up or invest in pension fund management companies.
  5. Foreign investors will receive support to establish or invest in currency brokerage firms.
  6. The transition period to lift the cap on foreign ownership in life insurance companies from 51% to 100% will end in 2020, instead of 2021 as previously announced.
  7. The restriction that domestic insurers must hold in aggregate not less than 75% equity stake in an insurance asset management company will be removed and foreign investors can hold more than 25% in insurance asset management companies.
  8. The requirement that a foreign insurer investing in China must have at least 30 years of experience of operating an insurance business is abolished.
  9. The cap on foreign ownership in securities firms, fund management firms and futures firms (currently 51%) will end in 2020, one year earlier than originally indicated.
  10. Foreign-invested financial firms are allowed to obtain type-A underwriting licenses in the interbank bond market.
  11. The Chinese government pledges to further facilitate foreign institutional investors’ investment in the interbank bond market.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions