On May 1, 2019, the China Banking and Insurance Regulatory Commission (CBIRC) released the response given by the Chairman of CBIRC, Mr GUO Shuqing to media interviews with regard to China’s new initiatives of further opening up the banking and insurance sectors to foreign capital.
According to Mr GUO Shuqing, the Chinese government will soon take the following steps to further relax regulatory restrictions/requirements in the banking and insurance sectors:
- Based on the principle that foreign and domestic capital is to be treated equally, neither a single Chinese domestic bank nor a single foreign bank will be subject to any shareholding limit in its investment in a domestic commercial bank in China.
By way of background, in August 2018, CBIRC abolished the rules imposing limits on the shareholdings of a single foreign investor (being 20 per cent) and of all foreign investors collectively (being 25 per cent) in Chinese domestic banks. However, the shareholding of major shareholders (including strategic investors), whether foreign or domestic, in small/medium sized commercial banks is still limited at 20 per cent generally. This shareholding restriction will be lifted completely by the proposed changes.
Notwithstanding this regulatory relaxation, CBIRC will further enhance its "penetrating supervision" methodology and strengthen the means to identify the shareholders of commercial banks with a number of tests, including (i) shareholders’ qualification, (ii) source of capital, (iii) capital distribution and (iv) connected transactions. This is to ensure the sound operation of the commercial banks to be invested.
- The requirements that a foreign bank must have total assets of US$10bn to set up a wholly-owned subsidiary bank in China or total assets of US$20bn to set up a branch in China will be lifted.
The relaxation of these requirements intends to make it possible for foreign banks which are relatively small size but which have particular strength/specialisation in certain areas to invest in China. This is expected to improve the diversity of China’s banking industry. Under the new legal regime, CBIRC will be more focused on the foreign banks’ business operational capability, quality and efficiency. Meanwhile CBIRC will continue to pay great attention to the operational prudence of foreign banks so as to control risks effectively.
- The requirement that a foreign financial institution must have total assets of US$1bn in order to invest into a Chinese trust company will be lifted.
- The requirements on the Chinese shareholder of a Sino-foreign joint venture bank will be relaxed and the Chinese sole shareholder or major shareholder of a Sino-foreign joint venture bank will no longer have to be a financial institution. This would further allow private capital to enter the banking sector and offer foreign investors more options in choosing their joint venture partners in China.
- Foreign financial institutions and banking/insurance institutions in China controlled by private capital will be encouraged to establish all kinds of collaborations by way of equity, business or technology.
In recent years, private capital has gradually entered the banking and insurance sectors in China. According CBIRC, China has 17 privately-owned banks, and this private capital holds shares in joint stock commercial banks, city commercial banks and even China’s five major commercial banks. The Chinese government intends to provide a level playing field in the banking and insurance sectors to foreign capital and domestic private capital and encourages a high level of collaboration between them.
- Based on the principle that foreign and domestic capital shall be treated equally, the requirements for domestic and foreign financial institutions to set up consumer finance companies will be relaxed.
- The regulatory approval currently applicable to the conduct of Renminbi business by foreign-invested banks will be lifted so that foreign-invested banks will be permitted to conduct Renminbi business when it opens for business. In addition, foreign-invested banks will be permitted to conduct agency receipt/payment business.
In a written announcement from April 27, 2018, CBIRC made it clear that the waiting period (one year from the date of business opening) before a foreign-invested bank may apply for CBIRC approval to conduct Renminbi business would be abolished. This change was reflected in the draft amendments to the Regulations on the Administration of Foreign-invested Banks which were published for public consultation on October 25, 2018. Under the new regime, CBIRC approval will no longer be required and a foreign-invested bank may conduct Renminbi business at the start of its operations.
- Foreign financial institutions – and not just foreign insurance companies as is currently the case – will be permitted to invest in foreign-invested insurance companies in China.
Under the current legal regime, foreign shareholders of a foreign-invested insurance company established in China (FIE Insurance Company) must be qualified insurance companies. Under the new regime, qualified non-insurance foreign financial institutions may be permitted to invest into an FIE Insurance Company provided the major shareholder of the FIE Insurance Company remains an insurance company. The regulator’s intention is to enhance the diversity and sources of capital of the shareholders of FIE Insurance Companies while retaining the professional strength of the major shareholders.
- The requirements that a foreign insurance brokerage company must have had at least 30 years’ operational experience and have total assets of no less than US$200m in order to set up an insurance brokerage company in China will be lifted.
China has to date approved six foreign-invested insurance brokerage companies, including Marsh, Aon and Willis. The intention of the regulatory relaxation is to encourage and guide high-quality foreign insurance brokerage companies to enter the China market to deepen the communication and collaboration with their peers of Chinese market players globally.
- Foreign insurance groups will be permitted to set up insurance institutions in China. This will include all types of insurance companies and intermediates in China. The intention of the regulator is to attract qualified foreign insurance groups to directly invest into the Chinese insurance market. In addition, foreign-invested insurance groups, such as Allianz China, will be permitted to set up insurance institutions in China by making reference to the same qualification requirements applicable to domestic insurance groups in this respect.
According to the spokesperson of CBIRC, the relevant legislation giving effect to the proposed regulatory initiatives will be promulgated in due course and some of the required changes may be published very soon. The team at Norton Rose Fulbright will provide further updates as this occurs.