On 10 November 2017, the Chinese Government announced that China will further open up its financial services sector.
This will be achieved by increasing, and eventually removing, limitations on foreign shareholding in securities, fund management and futures companies. Initially, the cap on shareholdings will be increased from 49% to 51%, with a total removal to follow in a few years’ time.
This announcement was made after US President Donald Trump’s official visit to Beijing, reflecting a consensus reached between the Chinese and US Governments in relation to the opening-up of China’s financial sector.
According to the speech delivered by the Deputy Finance Minister of China at a Government briefing on 09 November, Chinese regulators are now preparing detailed rules, which will allow overseas firms and global banks to take a controlling stake in onshore Chinese joint ventures for the first time in history.
The key points from this briefing are:
- First, for foreign companies investing in Chinese securities, fund management and futures companies, the restrictions on foreign shareholding is increased from 49% to 51%. All restrictions will be removed three years after the new rules take effect.
- Second, China will lift the current limits on foreign investors’ shareholding in domestic banks and so-called financial asset management companies1. At present, the Chinese Government imposes a 20% ceiling on a single foreign investor’s shareholding in a commercial bank or financial asset management company, and a 25% ceiling on total foreign shareholding in such companies. Under the new rules, foreign and domestic investors would be treated equally with regards to their ability to own shares in Chinese domestic banks and financial asset management companies.
- Finally, China will similarly increase the cap on foreign shareholdings in life insurance joint ventures set up by single or multiple foreign investors, which will move to 51%. All restrictions will be removed entirely within five years.
In another important development, a change has been proposed to the regulation of the Chinese financial services sector. Currently, China has three distinct regulatory bodies - the China Securities Regulatory Commission (CSRC), the China Banking Regulatory Commission (CBRC), and the China Insurance Regulatory Commission (CIRC). The CSRC is responsible for supervising securities, fund management and futures companies, while the CBRC is responsible for supervising banks, financial asset management companies, trusts and financial leasing companies. CIRC, meanwhile, supervises insurance companies and their asset management businesses. The segregation of supervision across these different regulatory bodies, has sometimes led to ambiguity and regulatory arbitrage in practice.
To address this issue, at the 19th National Congress of the Communist Party of China the Chinese Government decided to create a new regulatory body. This new body will be led by the central bank, and will be responsible for coordinating financial supervision and enhancing regulation across the financial sector. It will oversee the activities of CSRC, CBRC and CIRC reduce the risk of conflicts and arbitrage.
Under Chinese laws and regulations, the “financial asset management companies” refer to those asset management companies that are set up for the purpose of disposal of commercial banks’ distressed debts.
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