Introduction
Three weeks after China updated the negative lists for foreign investments in the pilot-free trade zones and elsewhere in the country (the Negative Lists), the Office of the Financial Stability and Development Committee under the State Council (国务院金融稳定发展委员会办公室) announced on July 20, 2019, a set of 11 measures aimed at accelerating the opening-up of the country’s financial services market (the 11 Opening-up Measures), which relate to the financial services industry that is under oversight by three regulators, namely the China Banking and Insurance Regulatory Commission (CBIRC), the China Securities Regulatory Commission (CSRC) and the People’s Bank of China (PBOC).
Seven measures within the regulatory ambit of CBIRC
- Foreign financial institutions will be encouraged to participate in the establishment and investment of the wealth management subsidiaries of commercial banks
Under the current Administrative Measures on Wealth Management Subsidiaries of Commercial Banks (《商业银行理财子公司管理办法》), wealth management subsidiaries of commercial banks can be established solely by the relevant commercial bank or jointly by the commercial bank together with domestic or foreign financial institutions or domestic non-financial enterprises. CBIRC will encourage Chinese commercial banks to introduce foreign financial institutions with significant experience in the asset management sector to invest in the wealth management subsidiaries of Chinese commercial banks.
- Foreign asset management companies (AMCs) will be permitted to establish foreign majority-owned wealth management joint ventures with subsidiaries of Chinese banks or insurance companies
To meet the increasing need of more sophisticated asset management expertise in the China market, CBIRC will encourage international leading AMCs to set up foreign majority-owned wealth management joint ventures with subsidiaries of Chinese banks or insurance companies on a pilot trial basis to introduce advanced asset management experience into the China market.
- Foreign financial institutions will be permitted to establish or invest in pension management companies
The pension management market in China is at a nascent stage and there are a limited number of domestic pension management companies in the market. CBIRC will, on a pilot trial basis, approve foreign financial institutions setting up or investing in pension management companies in China, with an aim to have more market players and introduce advanced experience into the domestic pension management market.
- Foreign investors will be supported in making investments in currency brokerage firms or establishing wholly foreign-owned currency brokerage firms
Currently, leading international currency brokerage companies are permitted to establish joint venture currency brokerage firms in China. In the future, foreign investors will be able to increase their shareholding in those joint ventures or make them wholly foreign-owned or to set up new foreign-invested currency brokerage firms.
- The 51 percent foreign shareholding restriction in a life insurance company will be fully liberalized in 2020
As provided for in the Negative Lists, the 51 percent foreign shareholding restriction in a life insurance company will be lifted in 2021. As announced by Premier Li Keqiang in the 2019 Summer Davos Forum earlier this month, this restriction will be fully liberalized in 2020, which is one year earlier than originally planned. It is expected that the applicable regulations in respect of foreign-invested insurance companies may be updated shortly to reflect this regulatory change.
- Foreign investors will be permitted to hold stake of more than 25 percent in an insurance AMC, which is currently subject to the 25 percent foreign shareholding limit
CBIRC has scheduled to amend the current Interim Provisions on the Administration of Insurance Asset Management Companies (《保险资产管理公司管理暂行规定》) to lift the 25 percent foreign shareholding limit in insurance AMCs.
- Foreign investors contemplating investing into foreign-invested insurance companies will no longer be subject to the 30-year track record requirement
At present, most international leading insurance conglomerates have a presence in China. The existing 30-year track record has restricted market entry by those foreign insurance companies that are relatively young but have unique specialities. Lifting this 30-year track record requirement is expected to enhance the development of specialized services in the insurance market.
One measure within the regulatory ambit of CSRC
- The lifting of the foreign ownership limit in securities firms, AMCs and futures companies will be advanced from 2021 to 2020
Similar to the situation regarding life insurance companies, the current 51 percent foreign shareholding limitation applicable to securities firms, AMCs and futures companies will be lifted in 2020, which is one year ahead of the original schedule as provided for in the Negative Lists.
Three measures within the regulatory ambit of PBOC
- Foreign-invested credit rating agencies will be permitted to provide ratings on all kinds of bonds traded on the interbank bonds market and the exchange-listed bonds market
The opening-up of the credit rating business to foreign investors has accelerated in recent years. Since July 2017, PBOC has issued a few notices to open up the interbank bonds market to foreign-invested credit rating agencies. It will be a further step in opening up the credit rating market by permitting foreign-invested credit rating agencies to provide rating services on all kinds of bonds across the interbank bonds market and the exchange-listed bonds market.
- Foreign-invested financial institutions will be able to obtain a Class-A lead underwriting license in the interbank bonds market
Foreign-invested banks have already been involved in the underwriting business for the RMB-denominated “panda bonds” in the China market. Three foreign-invested banks have obtained a Class-B lead underwriting license for debt financing instruments issued by offshore non-financial enterprises and three other foreign-invested banks have obtained the underwriting license for inter-bank bonds. In the future, foreign-invested financial institutions will be permitted to apply for a Class-A lead underwriting license to conduct lead underwriting business nationwide for debt financing instruments of non-financial enterprises.
- Foreign institutional investors will have access to more convenience in investing in the interbank bonds market
At present, foreign institutional investors may invest in the interbank bonds market by way of QFII/RQFII or direct investment. However, the funds and purchased bonds are segregated in the respective channels. In May 2019, PBOC and SAFE jointly issued a draft of the Notice on Matters relating to Further Convenience for Investment in the Interbank Bonds Market by Foreign Institutional Investors (《进一步便利境外机构投资者投资银行间债券市场有关问题的通知》) to solicit public opinions. Once this notice is officially promulgated, the funds in the QFII/RQFII custodian account and funds in the direct investment account of the same foreign institutional investor will become exchangeable, so are the purchased bonds in the QFII/RQFII bond account and the direct investment bonds account of the same investor.
For any further questions relating to any of the 11 Opening-up Measures, please contact Sun Hong, Lynn Yang, Tony Zhong and Tong Ai of Norton Rose Fulbright, Shanghai Office.
