作者：周昕 王晓雪 黄建贤 金杜律师事务所金融资本部
On 10 April 2018, President Xi Jinping made a keynote speech at the opening ceremony of the Boao Forum for Asia Annual Conference 2018. He announced that China will significantly ease market access, including in the financial sector. The next day, the People’s Bank of China Governor Yi Gang presented multiple measures for further opening up the financial sector and the timeline for doing so. This marks a new chapter in China’s opening-up of its financial market. It will bring new business opportunities for foreigners investing in financial institutions in China. Foreign-funded financial institutions will be treated equally with Chinese financial institutions in terms such as business scope and applications for certain licenses. We believe that foreign investors will enjoy more investment opportunities in domestic financial institutions.
- Investments by investors (other than traditional commercial banks) in domestic small and medium-sized banking financial institutions will supplement the capital of domestic banks. Challenges for investors will be – adhering to shareholder qualification regulations and restrictions on affiliated entities investing in multiple domestic banks.
- Foreign investors may increase their investments in Chinese trust companies and asset and wealth management financial institutions. In the general context of tight supervision over China’s asset management industry, foreign investments in this industry will be beneficial especially for those asset management institutions which are currently forced to operate their business in a grey area. Benefits include: learning from the experience of overseas asset management entities, increasing product design capabilities, expanding both domestic and international customer bases, and replenishing capital to hedge against the strict regulations around capital consumption;
- Foreign investors may increase their investments in the automobile and consumer finance industries. This will enable them to gain bigger market shares and increase their profits in China’s rapidly developing consumer finance market.
- Foreign investors may increase their investment in financial asset management companies, local asset management companies, and even non-performing asset funds to gain more access to the non-performing assets market.
- By way of investments into financial asset investment companies and wealth management subsidiaries (newly established by commercial banks), foreign investors may enter into the fields of debt-to-equity swapping, combinations of debt and equity, investment-loan linkage and wealth management.
- Domestic third party payment institutions may introduce foreign capital. It will enable them to internationalize development, enter into offshore capital markets and prepare for offshore listings. Giant overseas internet enterprises and payment institutions, long-awaited in this field, can use this opportunity to enter the Chinese market. They could carry out differentiated competition, or add an important dimension to their own business ecosystem – facing Chinese payment customers directly. Challenges in this area include the strict regulatory and compliance requirements around anti-money laundering, cybersecurity and protection of financial data and personal information.
The table below summarizes the opening-up measures for foreign investors and business scope in each relevant financial sector. Yi Gang has stated that relevant government departments are currently making amendments to existing laws and regulations to promulgate such measures ahead of the timeline shown below. We will focus on the progress of the opening-up in each sector and provide further analysis after the laws and regulations have been updated.
|Financial Sector||Opening-up Measures||Analysis|
l Removing restrictions on foreign ownership of commercial banks.
l Equal treatment of domestic and foreign capital.
l Allowing foreign banks to set up branches and subsidiaries (at the same time) in China.
Existing regulations have a:
– 20% individual ownership limit for a foreign investor’s shareholding in a single Chinese commercial bank.
– 25% aggregate ownership limit for the total shareholdings of all foreign investors in a single Chinese commercial bank.
Foreign investors will be treated the same as Chinese domestic investors when investing in Chinese commercial banks. Foreign banks will have more choices around their form of commercial presence in China.
|The business scope of foreign-invested banks will be expanded substantially.||Existing foreign invested banks will receive equal treatment with Chinese banks in terms of the scope of business and the application criteria for certain licenses.|
|Non-banking Financial Sectors (other than securities, funds, futures and insurance)||Encouraging foreign investors to enter the trust, financial leasing, auto finance, money brokerage and consumer finance sectors.||Banking institutions (other than commercial banks) have had an increasingly important and active role in China’s economy in recent years. However, most of these institutions (especially trust companies and consumer finance companies) have domestic investors. Encouraging further opening-up in this sector will allow more participation by foreign investors in China’s economy.|
Removing restrictions on foreign ownership of asset management companies.
Equal treatment of domestic and foreign capital.
|Foreign investors will receive equal treatment with Chinese domestic investors when investing in Chinese financial asset management companies.|
|No foreign ownership limit for financial asset investment or wealth management companies that have been newly established by commercial banks.||These companies may introduce foreign capital in the future.|
|Securities, Funds and Futures||
l Increasing the percentage of foreign ownership allowed for securities, fund management and futures companies to 51%. Phasing this limit out over three years.
l Removing the requirement that a joint venture securities company must have at least one securities company among its domestic shareholders.
|During the 3-year transition period, foreign investors can be controlling shareholder(s). After 3 years, the ownership limit will be completely removed (i.e. 100% foreign ownership will be permitted).|
|Removing restrictions on joint venture securities companies so that they have the same business scope as Chinese securities companies.||This opening-up measure is in line with the Measures for the Administration of Foreign-Invested Securities Companies promulgated by China Securities Regulatory Commission on 28 April 2018. This will gradually ease restrictions on the business scope of joint venture securities companies. It will also allow these companies to apply for a license in a lawful and orderly fashion.|
l Increasing the daily quotas under both Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect. From 1 May 2018, the daily quota for each of the northbound trading links will be adjusted to RMB52 billion and the daily quota for each of the southbound trading links will be adjusted to RMB42 billion.
l Aiming to launch the Shanghai-London stock connect program this year.
|Further expansion by the two-way opening-up of the Chinese capital market.|
l Increasing the cap on foreign ownership of life insurance companies to 51% and phasing out limitations over three years.
l Allowing qualified foreign investors to conduct insurance brokerage and assessment business in China.
l Removing restrictions on foreign-invested insurance brokers so they have the same business scope as Chinese insurance brokers.
l Removing the requirement that foreign-invested insurance companies must have had representative offices for two years before they set up businesses in China.
The opening-up in insurance sector will expand access and business scope for foreign investors.
Please refer to our article – PBOC intends to further ease the restrictions on foreign ownership in insurance sector for more information.
The following section summarizes the measures for opening-up the financial sector and their timeline.
1.History of policy direction on opening-up of the financial sector
- In the report of the 19th National Congress of the Communist Party of China, President Xi Jinping stated that China will implement the system of pre-establishment national treatment plus a negative list across the board, significantly ease market access, and further open up its services sector.
- At the press conference of economic gains concerning the meeting between the heads of state of China and the US held in Beijing, Vice Finance Minister Zhu Guangyao announced that China would ease certain restrictions in financial sectors including banking, securities and insurance. Please refer to our article – China eases restrictions on foreign ownership of Chinese financial institutions for more information.
- In the Report on Work of the Government delivered at the 13th National People’s Congress of the People’s Republic of China, Premier Li Keqiang suggested that, in 2018, China will:
- phase in an opening-up of bank card clearing and other markets;
- remove restrictions on the business scope of foreign-invested insurance brokerage companies;
- ease or remove restrictions on the foreign ownership of financial institutions (including, without limitation, commercial banks, security companies, fund management companies, futures companies and financial asset management companies);
- unify the market access standard for Chinese and foreign-invested banks.
2.Previously announced opening-up measures
- Banking: Recent laws and regulations include:
- the Notice on Matters Relating to Certain Businesses of Foreign-Invested Banks
- the Decision on Amending the Implementation Measures for the Administrative Licensing Items concerning Chinese-Invested Commercial Banks
- the Decision on Amending the Implementation Measures of the China Banking Regulatory Commission for the Administrative Licensing Items concerning Foreign-Invested Banks
Following the implementation of the above laws and regulations, the China Banking Regulatory Commission has further opened up the banking sector by easing restrictions on the foreign ownership of Chinese banks, expanding the business scope of foreign-invested banks, etc.
Please refer to our article – Further Opening-up for Foreign-Invested Banks for more information.
- Non-Banking Payment Institution: The Announcement on Matters concerning Foreign-Invested Payment Institution (No.7 Announcement of 2018) promulgated by the People’s Bank of China clarifies the requirements for establishment and regulation of foreign-invested payment institutions.
- Credit Rating: The Announcement on Matters concerning Providing Credit Rating Services by the Credit Rating Agencies on the Interbank Bond Market (No.7 Announcement of 2017) promulgated by the People’s Bank of China has permitted foreign credit rating agencies to engage in credit rating business on the interbank bond market.
- Others: Restrictions to market access for bank card clearing institutions have been eased, national treatment has been given to foreign-invested credit reporting institutions, etc.
3.Further opening-up measures
 As mentioned by Yi Gang, the governor of the People’s Bank of China, on 11 April 2018.