China's New Liberalisation Policies For The Financial Sector.

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Asia Pacific Legal Updates


1 June, 2018


China's New Liberalisation Policies For The Financial Sector.


China is advancing its policies to open up its markets and attract more foreign investment. This year, the financial sector is one of the focus areas for liberalisation. On 11 April 2018, Yi Gang, the governor of People’s Bank of China announced a detailed timetable (Timetable) for certain liberalisation policies in respect of the financial sector. In this e-bulletin, we summarise the key aspects of the Timetable and some of the other related regulations which have been issued recently.




The Timetable follows on from previous liberalisation policies issued in 2017 and early 2018. In October 2017, the report of the Nineteenth National Congress sets out a general requirement to “make new ground in pursuing liberalisation on all fronts, significantly ease market access, and further open the service sector”. At a press briefing on 10 November 2017, China’s Vice Finance, Minister Zhu Guangyao, announced plans to remove caps on foreign ownership in Chinese financial institutions. In the Report on the Work of the Government 2018, the government explicitly mentioned opening up bank card clearing and other markets, lifting restrictions on the scope of operations of foreign-invested insurance agency companies, easing restrictions on foreign ownership in certain sectors (including banking, securities, fund management, futures and financial asset management) and making market entry standards the same for both Chinese and foreign banks.


Commercial banks


The Timetable sets out the following three liberalisation policies for commercial banks:


1 - To remove the limit on foreign ownership in banks and to give equal treatment for Chinese and foreign investors by 30 June 2018. Under the current regulations, the equity ratio limit in a Chinese bank (and other Chinese financial institutions) for a single foreign shareholder is 20%, and the aggregate equity ratio limit for all foreign shareholders is 25%. Only foreign financial institutions can hold equity in a Chinese financial institution. The liberalisation policy will provide opportunities to foreign investors interested in Chinese domestic banks.


2 - To expand substantially the business scope of foreign-invested banks by 31 December 2018. Since early 2017, certain policies to lift the business entry restrictions on foreign-invested banks have already been issued:


  • In March 2017, the Circular of the General Office of the China Banking Regulatory Commission on Matters concerning Certain Business Undertaken by Foreign-invested Banks removed restrictions on foreign-invested banks conducting certain business, including treasury bond underwriting, custody services (except as otherwise provided), and financial advisory services.
  • In July 2017, the Implementation Measures of the China Banking Regulatory Commission for the Administrative Licensing Items concerning Chinese-Funded Commercial Banks (2017 Revision) allows foreign-invested banks incorporated in China to hold shares in other Chinese-funded banks.
  • In February 2018, the Implementation Measures of the China Banking Regulatory Commission for the Administrative Licensing Items concerning Foreign-Funded Banks (2018 revision) set out detailed procedures for foreign-invested banks to establish or invest in other Chinese-funded banks; remove the requirement for approval of the China Banking Regulatory Commission (CBRC) for foreign-invested banks seeking to provide certain services including custody services for securities invested funds and custody services for overseas wealth management products.


3. To allow foreign banks to set up branches and banking subsidiaries in China simultaneously by 30 June 2018.


Bank subsidiaries


The Timetable specifically deals with two types of bank subsidiaries: (i) bank invested asset investment companies (“Bank Investment Companies”) and (ii) bank invested asset management companies (“Bank AMCs”).


In 2017, CBRC promoted the use of Bank Investment Companies to hold the debt assets of commercial banks and realize their “debt conversion to equity” projects. Currently, all of the big five banks in China have set up their own Bank Investment Companies.


Chinese commercial banks are now setting up Bank AMCs following the new cross-regulator asset management rules which were issued in April 2018. The new rules require commercial banks who provide custody services for securities invested funds to set up subsidiaries with independent legal status to operate their asset management businesses.


Under the Timetable, foreign ownership restrictions on both of these types of bank subsidiaries will be removed by 31 December 2018.


Securities companies


The Timetable sets out the following three liberalisation policies for securities companies the first two of which are to be implemented by 30 June 2018 and the third by 31 December 2018:


  • to raise the limit on foreign ownership to 51%, and to entirely remove the limit after three years;
  • to remove the requirement that, for joint venture securities companies, one of the domestic shareholders must be a securities company; and
  • to companies to remove the restriction on the business scope of joint venture securities companies, and to offer equal treatment for Chinese and foreign investors.


On 28 April 2018, the China Securities Regulatory Commission issued Measures for Foreign Invested Securities Company (Measures). The key provisions in the Measures include:


  • allowing foreign investors to hold up to 51% of the equity in both listed and unlisted securities companies incorporated in China;
  • allowing newly established Sino-foreign joint venture securities companies to apply for approval to carry out up to four kinds of securities businesses;
  • Tightening qualification requirements on foreign investors investing in securities companies, including requirements as to reputation, recent profits and compliance; and
  • removing the requirement that at least one Chinese shareholder of a sino-foreign joint venture securities company must be a securities company.


Insurance companies


The following liberalisation policies in the insurance sector were also referred to in the Timetable:


  • to remove the requirement to have established a representative office for more than two years before being able to establish a foreign-invested insurance company;
  • to raise the limit on foreign ownership in life insurance companies to 51% by 30 June 2018, and to entirely remove the limit after three years;
  • to expand the business scope for foreign invested insurance brokerage companies to align with that permitted for Chinese insurance brokerage companies by 30 June 2018; and
  • to allow eligible foreign investors to conduct insurance agency business and insurance assessment business in China by 30 June 2018.


Other financial institutions


The Timetable provides that, by 30 June 2018, the limit on foreign ownership in fund and futures management companies will be raised to 51%, and will be entirely removed after three years. By 30 June 2018, the limit on foreign ownership in asset management companies will be removed and Chinese and foreign investors will be treated equally. Draft regulations on foreign-invested futures companies were issued on 4 May 2018 for public comment.


The Timetable also mentions future encouragement of foreign investments in non-banking financial institutions such as trust companies, financial leasing companies, auto finance companies, money brokers and consumer finance companies.


Our observations


Whilst some foreign banks have expressed interest in the new opportunities in China, others are not so optimistic due to the small number of business outlets and the high costs in China. The opening-up measures for bank subsidiaries, securities companies and other financial institutions will attract foreign investors with a particular interest in these businesses.


However, the details of the liberalisation policies are still unclear. For example, it is still unclear whether foreign investors who are not financial institutions will be allowed to invest in Chinese financial institutions. We expect to see detailed implementing regulations coming out in the next few months and suggest investors to keep an eye on the latest developments.


herbert smith Freehills


For further information, please contact:


Karen Ip, Partner, Herbert Smith Freehills

[email protected]