China releases policies to further open up and liberalise the financial sector in designated pilot free trade zones

Introduction

On 16 January 2025, the People’s Bank of China and four other major regulators in China jointly issued an opinion (the Opinion) which outlines 20 new policies to further expand the opening-up of the financial sector in China’s designated pilot free trade zones and areas in Shanghai, Guangdong province (including Hengqin, Qianhai and Guangzhou Nansha), Tianjin, Fujian province, Beijing, Hainan province and others (the Pilot Areas). Whilst there are still considerable uncertainties about the details and implementation timeframe of these announced policies, the Opinion accelerates China’s opening up and liberalisation in the financial sector with the expectation of tangible business opportunities for foreign financial service providers with interests in the Chinese financial services market.

Some notable new policies under the Opinion are set out below.

Notable new policies under the Opinion

Allowing foreign invested financial institutions to offer “new financial services” and enjoy the same treatment as domestic players. “New financial services” refer to financial services that have not been available within China but are already offered and regulated in other countries or regions. According to the Opinion, if domestic financial institutions could be approved to carry out certain “new financial services” in the Pilot Areas, foreign invested financial institutions should also be eligible to apply to carry out the same type of services, unless the envisaged “new financial services” would impact national security or financial security.

The Opinion also provides that Chinese regulators commit to review and process the applications filed by, literally, “overseas financial institutions”, “investors of overseas financial institutions” and/or “cross-border financial service providers” for providing relevant financial services in the Pilot Areas within 120 days of receipt of each application.

This policy wording does leave some room for clarification. It is unclear whether or not this policy is intended to introduce a new legal regime under which overseas financial institutions can apply for providing certain financial services to clients based in the Pilot Areas on a cross-border basis without the necessity of establishing a local presence, i.e. beyond China’s existing WTO commitments, which will be deemed as a substantial breakthrough of the existing legal regime in China. This needs to be further clarified by the regulators.

Expanding the scope of overseas financial products/services which can be purchased by Chinese consumers. According to the Opinion, on the basis of real needs, enterprises and individuals in the Pilot Areas are permitted to remit/settle funds on cross border basis for overseas insurance policies falling within “current account” transactions, including policy renewal, claims settlement and policy surrender.

In practice, some Chinese regulators have already expressed certain level of tolerance on Chinese consumers’ purchase of specific types of overseas “current account” insurance products, i.e. personal accident insurance and illness insurance, under certain conditions. On this basis, whether the Opinion intends to broaden the scope of such “current account” insurance products and to what level remains to be seen.

The Opinion also aims to optimise the Cross-boundary Wealth Management Connect (WMC) regime to allow mainland residents in the Greater Bay Area to purchase a wider scope of qualified investment products from Hong Kong and Macau financial institutions. Whether this means Chinese consumers in the mainland now can purchase the WMC products directly from Hong Kong and Macau financial institutions (instead of through mainland cooperative banks or securities firms which is the current permissible regime) remains to be clarified.

Easing cross-border transfer of financial data and other new policies. The Opinion aims to establish a unified legal regime on the cross-border transfer of financial data and to facilitate financial institutions in the Pilot Areas to outward transfer their data which is necessary for their day-to-day operation. The Opinion also proposes to establish a “whitelist” regime to allow the financial institutions in the Pilot Areas to freely transfer data outside of mainland China which falls within the permitted scope under the whitelist. How this will match and integrate into the existing data security and privacy regime (especially the new ones issued by National Financial Regulatory Administration - see the second briefing below) will be followed closely.

The Opinion also proposes certain other measures to facilitate the inbound and outbound fund remittance related to foreign investment activities, establish the cross-border dispute resolution mechanisms and encouraging overseas digital payment institutions to enter into the China market.