Client Briefing – New Moves to Open Up the Financial Sector: Lifting the Foreign Ownership Limit

On November 10, 2017, a briefing was held at the State Council’s Information Office covering the economic achievements reached during the Sino-US Beijing Conference between Chairman Xi and President Trump.  ZHU Guangyao, Deputy Administrator at the Ministry of Finance, detailed the elements agreed in relation to the economic sector, including the following new measures to further open up the financial sector in China to foreign investors:

（i）For securities companies, mutual fund management companies and futures companies regulated by the China Securities Regulatory Commission (“CSRC”), the foreign ownership limits, whether held directly or indirectly, on a single entity or aggregated basis, will be increased from 49% to 51%.  Further, three years after the above measures have been implemented, any remaining limits on foreign ownership will be removed.  

Our Observations: For any foreign institutions that have already entered into joint ventures (JV) in the Chinese market, the decision to raise the level of equity ownership in existing JVs or to establish new JVs in which they hold majority ownership would be a significant one, and would need to take into consideration their business expansion strategy in China.  With the opening up of the opportunity to hold controlling interest in Chinese securities, funds or futures companies, foreign institutions may look to buy into smaller-sized Chinese companies for which the cost of acquisition is more affordable.

（ii) For domestic commercial banks and financial asset management companies (AMC) regulated by the China Bank Regulatory Commission (“CBRC”), the foreign ownership limit of 20% on a single entity basis and 25% on an aggregated basis will be removed, and foreigners will be subject to the same requirements on equity ownership as Chinese nationals.

Our Observations: The foreign ownership limits on commercial banks and AMCs are being eliminated in a single move.  However, given that many major foreign commercial banks operating in China have already undertaken local incorporation, the removal of these restrictions may at this point be primarily symbolic.  

（iii）For insurance companies regulated by the China Insurance Regulatory Commission (“CIRC”), in three years time the foreign ownership limit on insurance companies engaged in personal insurance business will increase to 51%, whether on a single entity or aggregated basis.  In five years time, the foreign ownership limit will be removed altogether.

Our Observations: Compared to the liberalization of the banking industry and securities industry, there is a more longer-term approach to lifting foreign ownership limits on insurance companies.

It is our expectation that the CSRC, CBRC and CIRC will shortly amend the pertinent rules in order to implement the changes as described.  We will closely monitor the changes and will share them with our clients.