30 April, 2018
On April 12, 2018, news came one after the other about China accelerating the opening of its financial industry. Below are the measures for opening up according to the latest news.
I. Market Entry of Financial Industry
On April 11, 2018, Yi Gang, the Governor of the People’s Bank of China (“PBOC”), pointed out at the Boao Forum for Asia that the PBOC and relevant financial regulatory departments are working closely to finalize the implementation measures concerning opening up, and announced in the Forum twelve policies, among which, six of them are expected to come out in the first half of this year, and five by the end of this year. In addition, Governor Yi mentioned that the preparation for Shanghai-London Stock Connect is going well, and aims to launch the program within the year.
- Six Measures Expected to Be Implemented in the First Half of 2018
a. Removing the limits on foreign ownership in banks and financial asset management companies, treating those companies invested by foreign investors the same as their local counterparts, and allowing foreign banks to have both subsidiaries and branches within China at the same time.
b. Raising the maximum foreign ownership limits in securities houses, fund management firms, futures brokers and life insurance companies to 51%, and fully removing them after three years.
c. Removing the requirement that the domestic shareholders of a securities joint venture company shall at least have one securities company.
d. As of May 1, 2018, quadrupling the daily quota for stock connect program, i.e. the daily northbound quota (of Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect) will be raised from RMB 13 billion to RMB 52 billion, whilst the daily southbound quota will be raised from RMB 10.5 billion to RMB 42 billion.
e. Allowing qualified foreign investors to set up operations to provide insurance agency services and insurance leasing services.
f. Relaxing the business scope of foreign-invested insurance brokerage firms, which shall be treated the same as their local counterparts.
- Five Measures Expected to Be Implemented by the End of 2018
a. Encouraging foreign investment in trust, financial leasing, auto finance, currency brokerage and consumer finance.
b. Removing the limits on foreign ownership in financial asset investment companies and wealth management companies that are founded by commercial banks.
c. Significantly expanding the business scope of foreign-invested banks.
d. Removing the special requirement on the business scope of a securities joint venture company, which shall be treated the same as a domestically-invested securities company.
e. Removing the requirement that a foreign insurance company must have an onshore representative office for two years before setting up a foreign-invested insurance company.
Together with the announcement of these open policies, Governor Yi also affirmed that, along with its promotion of openness, China will prioritize and focus on financial risk prevention to maintain a level of regulation that matches its level of openness.
II. Quota for Capital Outflow
It is reported that the State Administration of Foreign Exchange (“SAFE”) is now considering increasing the quota for Qualified Domestic Limited Partners (“QDLPs”) registered in Shanghai and Qualified Domestic Institutional Investors (“QDIIs”) for their outbound investment.
- Proposed Increase of QDLP Quota
According to a report dated April 12, 2018 by CAIXIN.COM, an official from SAFE mentioned that the authority will, based on the status of the pilot program and the trend of international balance of payments, consider to increase the total quota for QDLPs in due time. We have noticed that it was the first time over the past two years that the SAFE officially expressed its plan for a total quota increase for QDLPs, which is good news to those institutions having an intention to apply for a QDLP quota, and may also give rise to more interests of potential applicants.
- More Quota for QDIIs
On the same day that Governor Yi announced the open policies, the SAFE on its website released an article named “Expanding the Opening Up of the Financial Market, Gradually Promoting the Implementation of QDII System”, which has drawn wide attention. The article says that in order to carry out the State’s requirements on expanding financial openness, the SAFE will gradually promote the progress of QDII related work based on the principles of equality, fairness and transparency to better cater to the needs of domestic market participants for cross-border asset allocation, by following the regulatory mindset of macro-prudential administration, and comprehensively evaluating the relevant factors (such as the AUM, internal control and compliance of each QDII applicant) after taking account into the business features of different types of institutions.
In addition, the SAFE indicates that its next step is to study how to best promote the QDII reform, and according to the current situation of the international balance of payments, industrial development trends and outbound investment status, it will further improve the macro-prudential administration for QDIIs. Given that its permission for quota increase last time was in March, 2015 and that the State is speeding up financial opening up, we observe from the above statement that SAFE is likely to resume granting new quota in the near future.
III. Our Observations
We look forward to the implementation of the above measures according the publicized timetable, and will continue to share the latest developments with our clients.
Natasha (Qing) Xie, Partner, Jun He