China Announces Financial Services Sector Reforms

by Mary Swire, for LawAndTax-News.com, Hong Kong

25 May 2007

Following the second meeting of the US-China Strategic Economic Dialogue this week, several key reforms to the latter country's financial sector were announced.

Commenting on the planned changes, the US Treasury observed that:

"A competitive and efficient financial sector will be an engine for growth in China's fast-growing economy, providing opportunities for American manufacturers, farmers, and other service providers. As China becomes progressively more integrated into the global economy and financial system, stability in China's financial sector becomes increasingly important for the US economy."

"Introduction of US securities firms, asset managers and insurance companies will help to develop expertise and depth in China's markets and improve the stability of the market."

China has announced it will take steps to encourage growth and competition in its financial sector, and to that end, will put in place the following measures:

• Expansion of US Financial Services Industry: China agreed to remove a block on the entry of new foreign securities firms and resume licensing securities companies, including joint-ventures, in the second half of 2007. In addition, China will announce before SED-III that it will allow foreign securities firms to expand their operations in China to include brokerage, proprietary trading and fund management. This will create opportunities for U.S. firms and provide new competition and expertise in the Chinese securities industry.
• Increased Qualified Foreign Institutional Investors (QFIIs) Quotas: To develop broader and deeper integration into the global financial market, China will raise the quota for Qualified Foreign Institutional Investors from $10 billion to $30 billion. The United States also welcomed China's May 10 announcement that it will expand QDII investment to include equity investment. It argued that this change can help diversify financial sector assets in China, which in turn can help enhance financial sector stability.
• Pending Foreign Property Insurance Company Conversion Applications: The China Insurance Regulatory Commission will make decisions by August 1, 2007 on applications for conversion from branch to subsidiary that have been pending for more than a year. China also commits to abide by regulations that require 60 day processing for future applications. This will allow for more efficient and cost effective operations.
• RMB Transactions by Foreign Banks: China agreed to immediately allow foreign-invested banks to offer their own brand of RMB-denominated credit and debit cards. This will allow US banks to offer a full range of RMB services to compete with Chinese banks that currently offer these services.
• Market Access for Insurance Firms - Enterprise Annuities: The Chinese Government agreed to streamline by SED-III the application and licensing process for the provision of enterprise annuities by financial institutions, which will allow U.S. insurance firms already operating in China to widen the range of services they provide and increase the amount of capital under their management for investment.

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