China Eases Foreign Ownership Limits of Securities and Fund Management Firms

By Alexander Chipman Koty

China recently released a series of measures to ease foreign investment restrictions in the securities, fund management, insurance, and banking industries.

Most notably, the China Securities Regulatory Commission (CSRC) released CSRC Order No. 140, which raises the foreign ownership limit of securities firms, effective immediately.

Under the new regulations, foreign investors will be able to own up to a 51 percent stake in securities firms, thereby allowing them to take a controlling stake in joint ventures (JVs). Previously, foreign ownership was limited to 49 percent.

The rules also remove the 20 percent limit on a single foreign investor’s share in a listed securities firm. Draft rules released in March for public comment planned to raise the limit to 30 percent, but the stipulation was ultimately removed entirely in the final rules. This means that a single foreign investor can now hold a controlling stake in a securities firm in China.

RELATED: China’s Auto Industry: Foreign Ownership Limits Scrapped

Additionally, the rules state that the CSRC will gradually expand the permissible business scope for foreign-invested securities firms.

With the changes, the CSRC has set up a process for foreign investors to apply for approval for setting up a new securities firm where they hold a controlling stake or for taking a controlling stake of an existing China-based securities firm.

To be approved, the foreign investor must satisfy various criteria, including being lawfully established and operating continuously for more than five years, being without any major regulatory violations in the past three years, demonstrating sound financial performance, and holding a strong international reputation.

The CSRC also increased the foreign ownership limit on fund management groups to 51 percent, up from the previous 49 percent cap.

Separately, the China Banking and Insurance Regulatory Commission (CBIRC) recently released three measures to accelerate the opening of the banking and insurance sectors.

The CBIRC’s Notice on Further Relaxation of Market Access for Foreign Banks states that foreign banks are now permitted to underwrite government bonds, and that Chinese branches can offer services in RMB and conduct derivatives business.

Meanwhile, the CBIRC’s Notice on Expanding the Business Scope of Foreign-funded Insurance Brokerage Companies says that foreign insurance brokerage companies can now engage in the same business activities as Chinese firms.

Lastly, the CBIRC is seeking opinions on the Decision to Abolish and Amend Some Regulations, which will ease foreign ownership restrictions on Chinese banks and revise or abolish various administrative regulations.

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In response to the changes, the Swiss investment bank UBS has already become the first foreign firm to apply to the CBIRC for a majority stake in its China JV. Other banks are expected to follow suit, though first they must come to an agreement with their existing partners.

The moves to liberalize China’s financial market follow the government’s pledge last November to grant greater access to the securities, insurance, and fund-management industries. More recently, Chinese President Xi Jinping pledged to expedite opening up the financial sector in his remarks at the Boao Forum in Hainan.

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