14 November 2017

China eases restrictions on foreign ownership of Chinese financial institutions

This article was written by Stanley Zhou and Andrew Fei.

The Chinese government has announced that it will ease or remove restrictions on foreign ownership of Chinese securities and futures firms, fund managers, commercial banks, financial asset managers, life insurers and certain other financial institutions.  Subject to certain transition periods, these changes will allow foreign investors to own a majority and eventually a 100% stake in many types of Chinese financial institutions.  The announcement therefore represents one of the most significant steps China has taken to further open up the financial sector in the world’s 2nd largest economy.

The announcement was made by Vice Finance Minister Zhu Guangyao at a press conference on 10 November 2017.  At the recently concluded 19th National Congress of the Communist Party of China, President Xi Jinping stated that China will significantly ease market access and further open up its services sector. 

The announcement only sets out the Chinese government’s high-level policy direction, and has not provided a great deal of details.  However, Vice Finance Minister Zhu stated that the relevant Chinese financial regulatory authorities will soon issue specific implementing rules in accordance with Chinese laws and regulations.  We will provide further analysis when the detailed rules are released. 

The table below summarises the key changes outlined by Vice Finance Minister Zhu on 10 November 2017, compared with the existing restrictions on foreign ownership of financial institutions.  Note that the table below does not present certain existing exemptions under special arrangements and treaties (such as Supplement 10 of the Mainland and Hong Kong Closer Economic Partnership Arrangement and Mainland and Macau Closer Economic Partnership Arrangement, commonly known as CEPA10) and pilot free trade zones (such as Shanghai Free Trade Zone).

These changes will present new business opportunities for foreign financial institutions in China.  They will also allow Chinese financial institutions to partner with, and attract capital from, foreign investors in new and exciting ways.  This would be the third significant opportunity for foreign financial firms to expand their investment in China, following the first wave in and around 2003 and the wave of foreign banks’ local-incorporation in 2006-2007.

King & Wood Mallesons has significant experience in successfully helping foreign financial institutions establish and expand their operations in China, enter into joint ventures with Chinese financial institutions and invest in the Chinese financial sector.  Should you wish to discuss what these changes mean for you or your business, please contact a member of our team.

Type of Chinese financial institution

Existing restrictions on foreign ownership

New rules – during the transaction period

New rules – at the end of the transition period

Securities firm

Futures firm

Funds management company

Publicly listed securities firm: 

  • 20% individual ownership limit for a foreign investor’s shareholding in the firm
  • 25% aggregate ownership limit for the total shareholdings of all foreign investors in the firm

Generally 49% ownership limit for other firms

Ownership limit will be increased to 51% (i.e., a majority stake)

After 3 years, ownership limit will be completely removed (i.e. 100% foreign ownership is permitted)

Commercial bank

20% individual ownership limit for a foreign investor’s shareholding in a single Chinese commercial bank

25% aggregate ownership limit for the total shareholdings of all foreign investors in a single Chinese commercial bank

The announcement stated that the equal treatment policy “starts now”, suggesting there will not be a transition period

Foreign investors will be treated the same as Chinese domestic investors when investing in Chinese commercial banks, which means (1) a foreign investor may increase its investment in Chinese commercial banks, and (2) current foreign invested banks may be treated equally with Chinese banks in terms of scope of business and conditions for applying for certain licenses.

Financial asset management company

20% individual ownership limit for a foreign investor’s shareholding in a single financial asset management company

25% aggregate ownership limit for the total shareholdings of all foreign investors in a single financial asset management company

The announcement stated that the equal treatment policy “starts now”, suggesting there will not be a transition period

Foreign investors will be treated the same as Chinese domestic investors when investing in Chinese financial asset management companies

Life insurance company

50% ownership limit

After 3 years, ownership limit will be increased to 51% (i.e., a majority stake)

After 5 years, ownership limit will be completely removed (i.e. 100% foreign ownership is permitted)

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