Page 382 - 2020 White Paper on the Business Environment in China
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0 White Paper on the Business Environment in China
Xi says the opening is steadily widening. China’s rating agencies and underwriting licenses have
regulator in April 2018 began allowing overseas been lifted. Foreign rating agencies can give
firms to apply for majority stakes in securities and rating to all kinds of bonds that are traded on
mutual-fund management ventures and promised China’s interbank market and exchanges. Foreign
to permit full control in three years. Draft rules invested banks are eligible to apply for type-A
to allow foreign companies to hold controlling principal underwriting licenses in the interbank
stakes in insurance firms were published in May bond market and act as the principal underwriters
that year. Foreign-ownership caps on banks and for domestic bonds. The announcement also
bad-debt managers—20 percent for a single mentions facilitating foreign institutional
institution and 25 percent for a group—were lifted investors’ investment in the interbank bond
in AugustBloomberg Economics estimates that — market. Detailed measures are expected. Entry
barring a major economic slowdown or change of to insurance and insurance assets management
course—foreign banks and securities companies industries are further widened. The qualification
could be raking in profits of more than $32 billion requirement for foreign investors in insurance
a year in China by 2030. Yet, many companies are companies is abolished. Foreign shareholding
taking a wait-and-see approach. The trade war cap in insurance asset management companies
continues to stoke fears that market access may is removed. Furthermore, the 11 Measures clarify
be revoked, and previous joint ventures involving that foreign investment is now permitted in
minority stakes that didn’t work out are still fresh the pension fund management sector. Foreign
in many memories. Chinese leaders have long financial institutions are encouraged to invest in
said opening is necessary to improve the quality asset management subsidiaries of commercial
and sophistication of the domestic industry, make banks. Foreign assets management companies
allocation of capital more efficient and attract are allowed to establish foreign controlled assets
foreign investment. Foreign players also can help management companies with the subsidiaries
improve competitiveness in the sector without of Chinese banks or insurers. Foreign investors
challenging the dominance of state-backed firms. will be given support to establish wholly foreign
Yet China is setting its own pace (Bloomberg, owned currency brokerage companies (WFOEs).
How’s China’s Opening). Although WFOEs are theoretically feasible under
the Measures for the Administration of Pilot
In July 2019, the Office of Financial Stability and Currency Brokerage Companies, no such WFOE
Development Committee of the State Council, has been approved since the commencement
China’s Central Government, announced Relevant of such pilot program in 2005. The 11 Measures
Measures for Further Opening Up Financial appear to be a positive signal in this regard.
Sector (aka “11 Measures”). The Chinese financial The publication of these 11 Measures will
sector has long been a sensitive area and foreign require relevant regulators to “normalize” the
investment has been restricted. However recent application and approval processes, and more
years have witnessed a series of relaxations. For detailed implementation rules (such as investor
example, the 2018 Edition of the Negative List qualifications and application procedures), are
removed the 20 percent foreign shareholding expected to be issued to give better guidance
in domestic banks, and permitted a 51 percent on the application process. That said, Chinese
controlling stake in joint ventures engaged in financial regulators enjoy significant discretionary
securities, fund management, futures, and life power in granting approvals and well-established
insurance business with a commitment that all foreign financial institutions that are well-known to
such caps will be removed completely by 2021. the authorities are perhaps more likely be granted
The July 2019 measures targeted almost all with new licenses and approvals initially although
financial sub-sectors in several different ways. broader opportunities should become available
The deadline for removing foreign investment as additional detailed regulations emerge (Lewis
cap in securities, fund management, futures, et al.).
and life insurance business has been brought
forward to 2020, a year earlier than the deadline
as noted before. The restrictions with respect to
382
Xi says the opening is steadily widening. China’s rating agencies and underwriting licenses have
regulator in April 2018 began allowing overseas been lifted. Foreign rating agencies can give
firms to apply for majority stakes in securities and rating to all kinds of bonds that are traded on
mutual-fund management ventures and promised China’s interbank market and exchanges. Foreign
to permit full control in three years. Draft rules invested banks are eligible to apply for type-A
to allow foreign companies to hold controlling principal underwriting licenses in the interbank
stakes in insurance firms were published in May bond market and act as the principal underwriters
that year. Foreign-ownership caps on banks and for domestic bonds. The announcement also
bad-debt managers—20 percent for a single mentions facilitating foreign institutional
institution and 25 percent for a group—were lifted investors’ investment in the interbank bond
in AugustBloomberg Economics estimates that — market. Detailed measures are expected. Entry
barring a major economic slowdown or change of to insurance and insurance assets management
course—foreign banks and securities companies industries are further widened. The qualification
could be raking in profits of more than $32 billion requirement for foreign investors in insurance
a year in China by 2030. Yet, many companies are companies is abolished. Foreign shareholding
taking a wait-and-see approach. The trade war cap in insurance asset management companies
continues to stoke fears that market access may is removed. Furthermore, the 11 Measures clarify
be revoked, and previous joint ventures involving that foreign investment is now permitted in
minority stakes that didn’t work out are still fresh the pension fund management sector. Foreign
in many memories. Chinese leaders have long financial institutions are encouraged to invest in
said opening is necessary to improve the quality asset management subsidiaries of commercial
and sophistication of the domestic industry, make banks. Foreign assets management companies
allocation of capital more efficient and attract are allowed to establish foreign controlled assets
foreign investment. Foreign players also can help management companies with the subsidiaries
improve competitiveness in the sector without of Chinese banks or insurers. Foreign investors
challenging the dominance of state-backed firms. will be given support to establish wholly foreign
Yet China is setting its own pace (Bloomberg, owned currency brokerage companies (WFOEs).
How’s China’s Opening). Although WFOEs are theoretically feasible under
the Measures for the Administration of Pilot
In July 2019, the Office of Financial Stability and Currency Brokerage Companies, no such WFOE
Development Committee of the State Council, has been approved since the commencement
China’s Central Government, announced Relevant of such pilot program in 2005. The 11 Measures
Measures for Further Opening Up Financial appear to be a positive signal in this regard.
Sector (aka “11 Measures”). The Chinese financial The publication of these 11 Measures will
sector has long been a sensitive area and foreign require relevant regulators to “normalize” the
investment has been restricted. However recent application and approval processes, and more
years have witnessed a series of relaxations. For detailed implementation rules (such as investor
example, the 2018 Edition of the Negative List qualifications and application procedures), are
removed the 20 percent foreign shareholding expected to be issued to give better guidance
in domestic banks, and permitted a 51 percent on the application process. That said, Chinese
controlling stake in joint ventures engaged in financial regulators enjoy significant discretionary
securities, fund management, futures, and life power in granting approvals and well-established
insurance business with a commitment that all foreign financial institutions that are well-known to
such caps will be removed completely by 2021. the authorities are perhaps more likely be granted
The July 2019 measures targeted almost all with new licenses and approvals initially although
financial sub-sectors in several different ways. broader opportunities should become available
The deadline for removing foreign investment as additional detailed regulations emerge (Lewis
cap in securities, fund management, futures, et al.).
and life insurance business has been brought
forward to 2020, a year earlier than the deadline
as noted before. The restrictions with respect to
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