China’s Recent Open Up Measures In Financial Sector.

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Asia Pacific Legal Updates


22 October, 2019


China’s Recent Open Up Measures In Financial Sector.


China has been quickening the pace of its opening up to foreign investors in recent months through the launch of numerous policies involving multiple sectors and regions. The most recent initiatives focus on the financial sector.


In August 2019, Beijing announced its three-year action plans on further open up to foreign investors in various sectors including an action plan for financial sector. Initiatives under the financial sector three-year action plan include easing entrance restrictions on foreign investors, promoting greater use of Renminbi in cross-border transactions, enabling internationalisation of financial services, attracting and accumulating overseas financial talent and assuring financial security and stability.


In September 2019, Shanghai followed suit by issuing regulations to foster further opening up to foreign investors, with measures to liberalise the financial sector. Shanghai also unveiled new measures immediately afterwards to promote opening up the financial sector in the new Lingang Free Trade Zone, offering a number of benefits to attract foreign investors.


These developments echo the measures released in July 2019 by the State Council’s Financial Stability and Development Committee which cover a broad spectrum of the financial sector including bonds, insurance and banking, and securities. The measures demonstrate China’s commitment to fulfilling the promise made by the former Vice Minister of the Ministry of Finance in 2017 that China will open up its financial sector to foreign investors in phases with a clear timeframe which could be relied upon by foreign investors.


In this bulletin we highlight the current status of permitted foreign investment in each of the bond, insurance and banking, and securities sectors. 




Foreign-invested rating agencies are able to give credit ratings to all types of bonds traded on China’s interbank bond market and exchange-traded bond market


The restrictions on foreign investors operating in the bond credit rating industry have been lifted since “credit investigation and rating service” was removed from the 2017 foreign investment negative list.


In July 2017, the People’s Bank of China issued a notice to abolish the foreign shareholding limitation in credit ratings for the Chinese inter-bank bond market and to permit a credit rating agency registered outside of China to carry out credit ratings for the Chinese inter-bank bond market subject to certain requirements, namely:


(i) it must be registered with, or accredited by, and effectively supervised by the credit rating authorities where it is domiciled;


(ii) the rating supervision mechanism where it is domiciled must comply with internationally recognised principles;


(iii) it must agree to be supervised by the People’s Bank of China in respect of the credit rating business to be conducted, or its home credit rating authorities must have established a supervision cooperation mechanism with the People’s Bank of China; and


(iv) it must have established subsidiaries within China which have registered with the People’s Bank of China or its provincial local branches.


To implement the notice, in March 2018 the National Association of Financial Market Institutional Investors issued detailed rules for assessing the eligibility of and registering credit rating agencies for the Chinese inter-bank bond market.


In January 2019, the registration of Standard & Poor’s WOFE marked a great leap forward for foreign-invested credit rating agencies operating in China. Previously it had operated in China through a strategic cooperation with Shanghai Brilliance Credit Rating & Investors Service Co., Ltd. According to a People’s Bank of China spokesman, further implementing measures will be taken to facilitate the process for foreign-invested credit rating agencies to carry out all types of credit rating services in the Chinese inter-bank bond market and exchange-traded bond market.


Foreign-invested institutions are able to obtain type-A principal underwriting licenses in the interbank bond market


Previously, foreign-invested institutions were only eligible to acquire type-B principal underwriting licenses for underwriting debt financing instruments for non-financial enterprises within limited territories. On 2 September 2019, the National Association of Financial Market Institutional Investors announced that, out of six applicants, Deutsche Bank China and BNP Paribas China had been granted type-A principal licenses for underwriting debt financing instruments for non-financial enterprises nationwide.


Additional measures will be implemented to further facilitate foreign institutional investors’ investment in China’s interbank bond market


Currently, foreign institutional investors can access China’s bond markets through various channels such as the Qualified Foreign Institutional Investors (QFII) and RMB Qualified Foreign Institutional Investor (RQFII) regimes, the CIBM Direct Access Scheme and Bond Connect. Having multiple but separate investment regimes is less convenient for foreign investors in terms of regulatory filings and bond and cash transfers.


In May 2019, the People’s Bank of China published draft measures to facilitate connectivity and fluidity among these different regimes. In the same vein, on 10 September 2019, the State Administration of Foreign Exchange abolished the investment cap for QFII and RQFII. 




Foreign financial institutions are encouraged to establish or invest in asset management subsidiaries of commercial banks


Since December 2018, numerous commercial banks have either established subsidiaries to carry out asset management business or are in the process of applying to do so. This follows the introduction of new measures by the China Banking and Insurance Regulatory Commission which provide for foreign financial institutions to establish asset management subsidiaries jointly with Chinese commercial banks. The China Banking and Insurance Regulatory Commission will provide guidance to qualified and interested commercial banks to enable them to engage actively with foreign financial institutions.


Foreign financial institutions are allowed to set up or invest in pension fund management companies


Currently, domestic pension fund management companies are operating under a pilot program under which they can only obtain approval for the pension fund management businesses until they are considered robust. Up to date, only one domestic pension fund management company has obtained such approval. According to the China Banking and Insurance Regulatory Commission, this incremental approach will be expended and will apply to foreign financial institutions’ approval for such business.


Foreign investors will be given support to invest in or establish wholly-owned currency broking companies


A number of leading currency broking companies have established joint ventures in China, including TPSITICO(China), NEX, IDB, BGC and CITIC Central Tanshi. Until now, however, no WFOE has been established for such businesses. The China Banking and Insurance Regulatory Commission is committed to actively supporting dialogue on an equal footing between foreign and Chinese shareholders with the aim of increasing foreign shareholdings in existing broking companies.


The transition period for lifting restrictions on foreign ownership in life insurance companies from 50% to 100% will end in 2020, instead of 2021 as previously stated


Under the current rules regulating the administration of foreign-funded insurance companies, where foreign insurance companies and Chinese companies form an equity joint venture to engage in personal insurance business within China, the foreign equity stake must not exceed 50% of the total shares of the joint venture. At the Boao Forum for Asia in 2018, Yi, Gang, the governor of the People’s Bank of China announced to ease such restriction by increasing the foreign equity cap to 51%. The measures introduced by the State Council in July 2019 further removed such ownership restriction and require certain regulations (including the above rules) to be amended. The 50% limit on foreign investment is to be increased to 100% by 2020.


The requirement for domestic insurance companies to hold in aggregate not less than a 75% equity interest in an insurance asset management company will be removed permitting foreign investors to hold more than 25%


The 75:25 equity interest ratio limitation for foreign investment in insurance asset management companies was set in 2011. The China Banking and Insurance Regulatory Commission has now lifted this shareholding restriction to enable foreign investors to hold more than 25%. To balance the risks of increased foreign investment, the Commission also intends to strengthen its management of shareholder qualifications and the on-going compliance requirements for insurance asset management companies.


The qualification requirements for foreign insurance companies to invest in China will be further relaxed.


The current requirement that a foreign insurance company should have been in business for not less than 30 years in order to be eligible to invest in China is to be abolished. This relaxation could open the investment market to younger, specialised insurance companies. 




Foreign ownership restrictions on securities companies, fund management companies and futures firms will end in 2020, one year earlier than originally planned


Following a state visit to China by President Donald Trump in November 2017, China committed to lift the limits on foreign ownership in securities, fund manager and futures companies from 49% to 51% and end restrictions altogether after three years. The 51% shareholding promise was achieved through regulatory updates in April and August 2018. Implementation measures could be expected in the following months to completely remove such ownership restrictions. 


To fulfil the promises it made when joining the WTO, China has been steadily opening up its financial sectors since 2001 with accelerated progress since 2017. Numerous campaigns have been launched to speed up the liberalisation process. For example, the China Banking and Insurance Regulatory Commission broadened the permitted business scope of foreign-invested banks in March 2017, amended the licensing regime for foreign banks in February 2018 and issued implementing measures for the opening up of the banking and insurance industries in April 2018. The China Securities Regulatory Commission issued draft regulations on foreign-invested securities companies in March 2018 and proposed integrating the current regulations on QFII and RQFII in January 2019.


The State Council’s July 2019 measures further indicate China’s clear intention to ease foreign ownership restrictions in the financial sector. We expect further regulatory updates and new implementation rules in the near future. Given the faster liberalisation timetable, stakeholders may want to consider whether and how to adjust their investment strategies in China. 


herbert smith Freehills



For further information, please contact:


Nanda Lau, Partner, Herbert Smith Freehills