5 May, 2017
The China Banking Regulatory Commission (“CBRC”) issued the Notice of China Banking Regulatory Commission on Matters Related to Provision of Certain Services by Foreign-Invested Banks, which allows foreign-invested banks to provide certain services.
The Ministry of Human Resources and Social Security (“MOHRSS”) revised the Administrative Provisions on the Employment of Foreigners in China, which simplifies the procedures for employing foreigners.
The State Council approved and issued seven overall plans for free trade zones (“FTZ”) in Liaoning Province, Zhejiang Province, Henan Province, Hubei Province, Chongqing City, Sichuan Province and Shanxi Province.
I CBRC allows foreign-invested banks to provide certain services
On March 10, 2017, the CBRC issued the Notice of China Banking Regulatory Commission on Matters Related to Provision of Certain Services by Foreign-Invested Banks (the “Notice”), allowing: (1) wholly-owned foreign banks and sino-foreign equity joint banks to provide underwriting services for treasury bonds; (2) wholly-owned foreign banks, sino-foreign equity joint banks and branches of foreign banks to provide custodian services and consulting services including financial consulting; and (3) wholly-owned foreign banks, sino-foreign equity joint banks and branches of foreign banks to cooperate with their respective parent banking group in providing the services. The CBRC shall adopt the post-services provision reporting system for the above allowed services. Subject to effective risk control, the BRCB may allow wholly-owned foreign banks and sino-foreign equity joint banks to invest in the domestic banking financial institution in compliance with relevant laws. The Notice was implemented on the date of issuance.
1.1Background
The Administrative Regulations of the People's Republic of China on Foreign-invested Banks (the “Administrative Regulations”) outlines more than ten services which may be provided by wholly-owned foreign banks, sino-foreign equity joint banks and branches of foreign banks, and other services which may be provided by these banks upon the CBRC’s approval. The services do not include underwriting services for treasury bonds, custodian services and consulting services including financial consulting. The Administrative Regulations do not provide guidance for regulating the outward investments of foreign-invested banks.
In January 2017, the Statue Council issued the Several Measures on Further Opening-up and Active Use of Foreign Investment, which put forward 20 measures covering three main areas of interest, including further opening-up to foreign investors, further improvements on creating a fair competition environment and further attracting foreign investments. One of these measures is to relax the restrictions on market access of banking financial institutions.
1.2Legal Review
The Notice stipulates that wholly-owned foreign banks and sino-foreign equity joint banks may provide underwriting services for the treasury bonds without obtaining approvals from the CBRC, but only are required to report to the relevant regulatory departments within five days after the provision of such services. The opening-up of underwriting services for the treasury bonds to foreign-invested banks by the CBRC ends the era where only domestic banks could provide such services. The State Council has abolished the approval formalities for membership qualifications of underwriting groups for treasury bonds in 2012 and the Ministry of Finance has abolished the Measures for Examining and Approving the Membership Qualification of Underwriting Group for Treasury Bonds accordingly in 2015. The foreign-invested banks, upon satisfying all the legal conditions, will be eligible to be elected as a member of the underwriting group for treasury bonds by the Ministry of Finance.
The Notice also provides that wholly-owned foreign banks, sino-foreign equity joint banks and branches of foreign banks may provide custodian services and consulting services including financial consulting without obtaining approval from the CBRC, but are only required to report to the relevant regulatory departments within five days after the provision of such services. The CBRC has abolished the requirements for applying for permits to conduct custodian services for securities investment funds by Chinese commercial banks, for investments by qualified foreign institutional investors on domestic securities, for the National Social Security Fund in 2013. The opening-up of custodian services for the treasury bonds to foreign-invested banks by the CBRC ends the era where only domestic banks can provide such services. However, although it no longer requires obtaining approval from the CBRC for provision of the custodian services for securities investment funds, but for conducting fund custodian services, the relevant foreign-invested banks shall obtain fund custodian qualification from the China Securities Regulatory Commission.
The Administrative Regulations only allow wholly-owned foreign banks, sino-foreign equity joint banks and branches of foreign banks to provide services, but they do not allow these foreign-invested banks to cooperate with their respective parent banking groups in providing the services. In order to provide comprehensive financial services for activities including issuance of bonds, initial public offering, mergers and acquisitions and financing of domestic enterprises abroad, the CBRC may allow wholly-owned foreign banks, sino-foreign equity joint banks and branches of foreign banks to cooperate with their respective parent banking group in providing the services. These wholly-owned foreign banks, sino-foreign equity joint banks or branches of foreign banks are not required to obtain approval from the CBRC, but are only required to report to the relevant regulatory departments in the first quarter of each year the cooperation status with the parent banking group of the previous year.
The CBRC used to only allow domestic institutions to invest in Chinese financial institutions. The People's Bank of China used to prohibit foreign-invested or sino-foreign joint equity financial institutions investing in Chinese financial institutions. Therefore, before the issuance of the Notice, investment in Chinese financial institutions by foreign-invested banks could only be done through overseas parent banking groups. The Notice issued by the CBRC allows wholly-owned foreign banks and sino-foreign equity joint banks to invest in domestic banking financial institutions in compliance with relevant laws, subject to effective risk control.
1.3Next Steps
We understand that for the implementation of the Notice, the CBRC will further issue the corresponding implementation rules, which is worthy of our attention.
II MOHRSS simplifies the procedures for employing foreigners
On March 13, 2017, the MOHRSS revised the Administrative Provisions on the Employment of Foreigners in China (“Foreigner Employment Provisions”), which simplifies the procedures for employing foreigners. The revised Foreigner Employment Provisions were implemented on the date of issuance.
2.1Background
Ministry of Labour, Ministry of Public Security, Ministry of Foreign Affairs and Ministry of Foreign Trade and Economic Cooperation jointly promulgated the Foreigner Employer Provisions on January 22, 1996, which set forth regulations on employment permissions, applications and approvals, labour management and other matters related to employment of foreigners in China. Before employing foreigners, the employers (other than foreign-invested enterprises) shall first seek approval by the competent authorities of relevant industries and then apply to the labor administrative departments for the Foreigner Employment Permit of the People’s Republic of China (the “Employment Permit”). After the employer has obtained the approval for employing foreigners, the authorized entity shall send notice of visa and Employment Permits to the foreigner to be employed. The foreigners approved to be employed in China shall apply for an employment visa by providing the Employment Permit issued by the Ministry of Labour, a notice sent by the authorized entity and valid passport of their own country or valid documents which may be substituted for a passport. The employer shall apply for Employment Certificate of Foreigners within 15 days after the employed foreigners enters China and shall apply for the permit to stay within 30 days after entering China. The Foreigner Employer Provisions were implemented on May 1, 1996.
Before this revision, due to the abolishment of the laws and regulations referred to therein, the MOHRSS only made a minor amendment on the Foreigner Employer Provisions in 2010. Besides that, the MOHRSS did not further revise the Foreigner Employer Provisions.
2.2 Legal Review
The revision on Foreigner Employer Provisions by the MOHRSS this time mainly focuses on the following two matters:
(1) Changing the “employment visa” to a “Z visa”. Since pursuant to both the abolished Implementing Rules of the Law of the People's Republic of China on the Control of the Entry and Exit of Foreigners and the currently effective Administrative Regulations of the People's Republic of China on Entry and Exit of Foreigners, visas issued to foreigners applying for employment in China are all Z visas, the MOHRSS revised the original expression in the Foreigner Employment Provisions of “employment visa” to that of “Z visa”; and
(2) Striking the provision requiring the employer to issue a notice of visa. The Foreign Employment Provisions do not define the term of “authorized entity”, which leads to some challenges when implementing this provision. By removing the provision requiring the employer to issue a notice of visa in the Foreign Employment Provisions by the MOHRSS, the procedure for employing foreigners is simplified, which is evidenced by two amendments: (i) lifting the requirement that after the employer has obtained the approval for employing foreigners, the authorized entity shall send a notice of visa and Employment Permit to the foreigner to be employed; and (ii) lifting the requirement that the foreigners approved to be employed in China shall apply for a Z visa by providing notice sent by the authorized entity.
Since the implementation of Foreigner Employment Provisions in 1996, the MOHRSS has only made two minor amendments on this provision, which indicates that China still adopts a relatively cautious attitude toward the employment of foreigners.
2.3Next Steps
In order to attract high-level talent to work in China, the State Council decided to merge the Employment Permit and the Work Permit for Foreign Expert Working in China into the “work permit for foreigners working in China” in 2015, and the State Administration of Foreign Experts Affairs is responsible for the organization and implementation of this measure and local governments shall enforce this measure after taking into consideration the local reality. The State Administration of Foreign Experts Affairs decided to adopt the unified expression of Foreigner Working Permit for the Employment Permit and the Work Permit for Foreign Expert Working in China and the Foreigner Working Permit will be an electronic form available for printing online. Hence, the original Employment Permit and Work Permit for Foreign Expert Working in China are unified into a single Foreigner Working Permit. From October 2016 to March 2017, Beijing City, Tianjin City, Hebei Province, Shanghai City, Anhui Province, Shandong Province, Guangdong Province, Sichuan Province, Yunnan Province and Ningxia Autonomous Regime were used as trial sites for the system of work permits for foreigners working in China. Starting from April 1, 2017, the system of work permits for foreigners have been adopted nationwide1.
In January 2017, the State Council issued the Several Measures on Further Opening-up and Active Use of Foreign Investment, which supports start-ups and the development of overseas high-level talent in China and states that conveniences shall be provided for the application of multiple entry visas and permits to stay by overseas high-level talent and their foreign spouses and children, according to laws and regulations.
The current revision of the Foreigner Employment Provisions by the MOHRSS merely focuses on simplification of the procedure for employing foreigners, but does not amend the Foreign Employment Provisions regarding work permits for foreigners working in China and to provide conveniences for applying multiple entry visas and permits to stay by overseas high-level talent. We will continue to monitor future regulatory developments.
III Pilot Free Trade Zone “1+3+7” Pattern has Emerged
On March 31, 2017, the State Council issued Seven Overall Plans for the China (Liaoning) Pilot Free Trade Zone, China (Zhejiang) Pilot Free Trade Zone, China (Henan) Pilot Free Trade Zone, China (Hubei) Pilot Free Trade Zone, China (Chongqing) Pilot Free Trade Zone, China (Sichuan) Pilot Free Trade Zone, and China (Shanxi) Pilot Free Trade Zone (“7 FTZ Plans”). Meanwhile, the Circular of the State Council on Issuing the Plan for Deepening the Comprehensive Reform and Opening-up of the China (Shanghai) Pilot Free Trade Zone was also released. The State Council held a press conference and invited relevant senior officials to provide a briefing on the situation regarding the aforementioned eight FTZs.
3.1 Background
In September 2013, Shanghai FTZ was formally established. In April 2015, Guangdong, Tianjin and Fujian also received approval to launch their own FTZs. In August 2016, the State Council decided to expand the FTZs to Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan and Shanxi. After half a year of planning, the third batch of Seven FTZs were officially approved by State Council recently. On the same day, the third edition plan for Shanghai FTZ was also approved and released. These developments signal that the FTZ “1+3+7” Pattern has emerged.
3.2 Legal Review
Overall, the Seven FTZ Plans inherit and copy the framework set out in the second batch of FTZ Plans (for Guangdong, Tianjin and Fujian),each with the common aim of forming an institutionally innovation system that is able to correspond to common international rules on investment and trade through three to five year period explorations. Every FTZ has three sub-areas totaling no more than 120 km2 in the area of implementation.
From the perspective of foreign investment, the Seven FTZ Plans also continue the existing policies stated in the previous FTZ Plans, including allowing foreign-invested equity investment management institutions and foreign-invested venture investment management institutions to initiate and manage Renminbi equity investment and venture investment funds in the seven new FTZs; allowing eligible overseas investors to freely remit their returns on investment.
Under a similar structure, the seven new FTZs still have their own emphasis according to their different specialties and development contexts. Among them, Zhejiang FTZ Plan may be the most unique. Unlike other FTZ Plans, Zhejiang FTZ Plan has no sub-area in its provincial capital, and all three sub-areas are located in the Zhoushan Islands. In Zhejiang FTZ Plan, a major section is devoted to promoting the development of whole supply chains of oil products, including the construction of an international maritime service base, an international petrochemical base, as well as a trade center for oil related products. The mission to improve its global influence in bulk commodity allocation capacity is also clearly stated in the Zhejiang FTZ Plan. Other than Zhejiang, Liaoning FTZ’s special objective is to advance the reform of state-owned enterprises; FTZs in Chongqing, Sichuan and Shanxi have common strategic goals to lead great development in western areas; Henan FTZ has its focus on constructing a transportation and logistics hub; Hubei FTZ plays its special role in developing the Yangtze River Economic Zone.
As for Shanghai FTZ, it is set to continue its reform in all respects. Until 2020, Shanghai will establish an institutional system compatible with generally-accepted international investments and trade rules. The Shanghai FTZ shall, pursuant to the highest international standards, conduct more robust stress tests for the purpose of promoting a new round of further opening-up to foreign investments.
It is also worth noting that, unlike other FTZ plans which have minimal mention of land utilization policy, there is a paragraph regarding land provision policy reform in Sichuan FTZ Plan: “Explore to establish a model of economical and intensive use of land. By allowing multiple functions to coexist on the same plot of land or the same building, land in FTZ may be mix-used for different functions. Industrial land may be supplied in a flexible term and may according to industrial policy and category, adopt the land provision method of leasing first and then transferring and different land provision methods in transferring terms.” This paragraph may imply that the FTZ will also become a trial field for land-use rights and institutional innovation.
3.3 Next Steps
The formal approval of the third batch of FTZs means the existing costal FTZs have achieved recognizable results and the functions of FTZs are not limited to serve maritime trade. The FTZs begin to expand inland to the mid-western and north-eastern provinces. Through opening-up and institutional reforms on a more comprehensive basis, the relevant governmental entities are pressured to improve and upgrade their administrative functions. While great efforts were spent to attract overseas capital, advanced technologies and high-level talent, it is also worth noting that the national security review and the regulatory system of actual controllers toward foreign investments are also being established and improved.
1、Circular of the State Administration of Foreign Experts Affairs on Printing the Implementation Plan for Work Permit System for Foreigners Working in China.
For further information, please contact:
Catherine Miao, Partner, Jun He
miaoqh@junhe.com
