15 December 2017

Opening up China’s banking industry: another step forward

This article was written by Chen Yun(Robert)(Partner) and Wang Rong(Managing Associate).

  • On December 13, 2017, the China Banking Regulatory Commission (“CBRC") issued a press release entitled CBRC Actively and Steadily Push Ahead the Opening up of the Banking Industry, which indicates that the opening up process of the banking industry will be carried forward continuously.
  • Although CBRC emphasizes that there is no clear timetable for each opening up step, the target of relaxing market access remains unchanged.
  • From the beginning of this year, several legislations and policies have been published for the opening up of the banking industry:

Timeline ofthe Legislations and Policies


Major Areas for Opening up


Key Highlights:Business Presence & Shareholding Limit

1.Under the current administration which is based on the regulatory categorization of a bank, commercial banks with foreign shareholding are divided into the following types:


2. In respect of a bank with a foreign shareholding between 25% and 50%, theoretically, it shall be regulated as a Sino-Foreign JV Bank, but in practice, no CBRC department would accept and review the application for setting up such a bank, leaving it a regulatory grey area.

3. The series of opening up policies in 2017 intend to make up the above grey area and it only takes some time for the implementation guidelines to be promulgated.

4. Foreign investors are further allowed to make investment into a PRC incorporated bank indirectly through an FIE Bank.


5. It should be noted that the so-called "no special treatment for foreign investors on shareholding amount" should not be interpreted as granting foreign investors special preferential treatment and the shareholder qualification requirements, in particular the "Double-banking Limitation" rule (which means one single shareholder shall only have stake(s) in no more than two banks including a controlling stake (if any) in no more than one bank), are still applicable to foreign investors.


6. A plain reading of the "Double-banking Limitation" rule reflected in the recent CBRC consultation paper indicates three notable points that CBRC might focus on when reviewing the shareholder qualification relating to commercial banks (including state-owned commercial banks, joint-stock commercial banks, city commercial banks, rural commercial banks, county banks and FIE banks):

  • CBRC might calculate the number of commercial banks not only held by one single investor but also by the affiliates and persons-acting-in-concert of the investor.
  • The 2010 "Double-banking Limitation" rule allows a foreign investor to own a WFOE bank and to hold participation stakes in two domestic funded banks simultaneously since WFOE banks and domestic funded banks are regulated as banks of different nature.  However, according to the recent CBRC consultation paper, if a foreign investor has already owned a WFOE bank, it might only be allowed to hold participation stake in one domestic funded bank.
  • When it comes to the standard for determining the shareholding with controlling stake, CBRC intends to adopt a comprehensive "control" standard to replace the old standard solely determined by whether there is a controlling share.

7. Nevertheless, we will wait and see how the updated "Double-banking Limitation" rule would be documented in the paper to be formally promulgated.

8. Apart from the above, compared to the MOFA Release, CBRC Release applied a patch to a loophole of the relaxation of the shareholding limit: private-owned banks are expressly excluded from the no special treatment principle - i.e. the current prohibition preventing foreign investors from investing private-owned banks still applies.

Key Highlights:RMB Business

The biggest breakthrough of the CBRC Release is to remove the current limitation on the carrying on of RMB business by FIE Banks and Foreign Bank PRC Branches.


The implementation of the above policies is subject to the amendment to relevant laws and regulations.

A Bright Future?

A decade has passed since foreign banks were allowed to be locally incorporated in the PRC.  During this decade, the businesses of foreign bank PRC presences have not seen a rapid growth but experienced a "lost ten years", as concluded by the press.

A further relaxation of market access is highly expected and welcomed by the foreign investors.

The series of opening up policies in 2017 are responding to such expectations and the bright future of foreign invested banks might be fast approaching.

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