On 11 October 2019, the China Securities Regulatory Commission (CSRC) announced a clearer accelerated timeframe for lifting foreign shareholding caps (i.e. 51%) in futures companies, public securities investment fund management companies and securities companies. Qualified foreign firms now have a clearer road map towards full ownership of financial service institutions in China.
The details are as follows:
- for futures companies – 1 January 2020;
- for public securities investment fund management companies – 1 April 2020; and
- for securities companies – 1 December 2020.
In 2018, the Chinese government removed the foreign shareholding cap in non-foreign-invested banks, and raised the foreign shareholding cap in the above companies as well as life insurance companies to 51% pending removal in 2021. The latest movement could be viewed as an implementation of the eleven opening-up measures in financial sectors announced in July 2019, after Premier Li’s pledge of bringing forward the original timeframe by one year. Please refer to our recent alert China removes more barriers to market entry for more information. Now the only sector pending the announcement of an exact timeframe (in 2020) to remove the foreign shareholding cap is the life insurance sector[1].
This confirmation message came out almost simultaneously with the U.S. and China resuming trade talks in Washington, and could be easily taken by the market as a gesture facilitating the conclusion of agreements between the two largest economies in the world. On the other hand, the inclusion of more international players in the financial service industry (in particular its most protected securities sector) would be helpful to China for luring the flow of foreign capital into China’s stock and bond market, in addition to the recent expansion and reformation of the QFII/RQFII regime and other market access rules.
The liberalization of China’s long-protected financial industry is proceeding on an unprecedentedly speedy basis. Earlier this year, China saw the first two newly established foreign-controlled securities joint ventures – J.P. Morgan Securities and Nomura Orient International Securities. Just weeks ago, the People’s Bank of China approved Paypal’s acquisition of 70% equity in Gopay, which renders Gopay the first foreign-invested payment platform in China.
[1] On 30 September 2019, the State Council released a decision to, among other things, amend the Administrative Regulations of the People’s Republic of China on Foreign-invested Insurance Companies (the Decision). Although the Decision has not removed the foreign shareholding cap on life insurance companies, it, among other things, lowered the threshold for establishing foreign-invested insurance companies by means of removing the previous shareholder qualification requirements for a minimum operational track record of 30 years and a seasoning requirement that the shareholder should have established a CBIRC-licensed representative office in China for at least two years. This is the latest development further to our recent alert (click here for more information). Please note that the Decision would also reduce a series of shareholder qualification requirements and ongoing operational requirements and restrictions for foreign-invested banks.
If you have any questions in relation to recent developments or to market entry in China more generally, please feel free to contact us.
