China finally changes rules to allow wider operating scope for foreign banks and insurers

In mid-October, the Chinese government announced rule changes that eliminate or ease restrictions on foreign financial institutions. In principle, the reforms take effect immediately, so the bank and insurance regulator (CBIRC) has promised to expedite guidelines on implementation of the new rules. In the past, however, officials have often used permitting processes to delay implementation of reforms.

In addition to joint ventures with Chinese banks, foreign banks can now open wholly owned subsidiaries and branches under the new rules. Rules on working capital and fields of operation have also been relaxed. The potential customer base of banks has been broadened by halving the required amount of individual time deposit to 500,000 yuan (70,000 dollars). In addition to eliminating ownership restrictions on insurance companies, the government has ended the requirement that firms have 30 year of experience in the insurance business and that they have had a representative office in China for at least two years.

When China joined the World Trade Organization in 2001, it committed to deregulation of financial institutions over the next five years. In fact, the opening up of China’s financial sector has proceeded at a snail’s pace. The latest liberalisation measures in banking and insurance make good on promises announced by the government in November 2017 and April 2018. The trade war with the US and the weakening of the economy have increased the urgency to move ahead with reforms. China this year has opened its markets to international credit ratings agencies. In October, China announced that it was eliminating foreign ownership rules on companies involved in futures trading, mutual funds and securities trade by 2020.

Despite extremely limited opportunities, dozens of foreign financial firms already operate in China. Their impact on the Chinese financial sectors is minimal, however. Foreign firms represent just 1.6 % of the total assets of the Chinese banking sector, and 6.4 % of the Chinese insurance sector.