Introduction

The Government of the People’s Republic of China (hereinafter, “China”) and the Government of the United States of America (hereinafter, “United States”, and collectively with China, the “Parties”) has formally signed their phase-one economic and trade agreement on 15 January 2020 (hereinafter, the “Agreement”). Among other chapters, chapter 4 of the Agreement provides a series of measures on financial services, which especially center on expanding opening each of its financial markets to each other. Below are the core opening-up measures in the financial industry stipulated by China in the Agreement. These vigorous measures may indicate that Chinese financial opening is entering into a brand new stage of development. Hopefully, these vigorous measures will indicate that the opening up of the China financial industry is entering a brand new developmental period.

I. Banking Services

China commits to allow branches of U.S. financial institutions to provide securities investment fund custody services, and their parent companies’ overseas assets shall be taken into consideration to fulfill applicable asset requirements. And China shall review and approve qualified applications by U.S. financial institutions for securities investment fund custody licenses on an expeditious basis.

To those U.S. financial institutions applying to serve as Type-A lead underwriters for all types of non-financial debt instruments, China affirms to take U.S. financial institutions’ international qualifications into consideration, and evaluate and grant licenses based on certain formulas.

II. Credit Rating Services

As agreed upon between parties, “China affirms to allow wholly U.S.-owned credit rating services supplier to rate domestic bonds sold to domestic and international investors, including for the interbank market. Within three months after the date of entry into force of this Agreement, China shall review and approve any pending license applications of U.S. service suppliers to provide credit rating services. China shall allow a supplier of credit rating services of the United States to acquire a majority ownership stake in the supplier’s existing joint venture.”[1] 

Actually, in recent years, the three major international rating agencies, Standard & Poor's, Moody's and Fitch have all established wholly-owned enterprises in China and submitted registration applications to the National Association of Financial Market Institutional Investors (hereinafter, “NAFMII”) successively.

According to the announcement published by Operation Offices of the People’s Bank of China (hereinafter, “PBC”) in 28 January 2019, S & P Global Inc.'s wholly-owned subsidiary in Beijing, S & P Credit Rating (China) Co., Ltd. (标普信用评级（中国）有限公司) (hereinafter, “S&P China”), has completed the filling procedure with PBC[2]. On the same day, the NAFMII announced to accept the registration application of S&P China to enter the interbank bond market and conduct bond rating business. Those announcements indicate that S & P has officially been approved to carry out credit rating services in China. Since its inception, S&P China has completed corporate credit rating businesses for ICBC Leasing(工银金融租赁), Luzhou City Commercial Bank(泸州银行), Postal Savings Bank of China(邮储银行), and Shanghai Rural Commercial Bank(上海农商行).

The PBC stated that the introduction of international credit rating industry is an important part of steadily expanding the opening of the financial market to the outside world, and PBC plans to promote the opening level of the credit rating industry continuously and support more foreign credit rating agencies with international influence and qualifications to enter the Chinese market in next phases[3]. Moody's and Fitch are waiting for further acceptance and reply for the moment. And Moody's is expected to become the next foreign investment rating agency to conduct credit rating businesses in China.

III. Electronic Payment Services

According to the Agreement, “China shall accept any applications from a U.S. electronic payment services supplier, including an application of a supplier seeking to operate as a wholly foreign-owned entity, to begin preparatory work to become a bank card clearing institution. And China shall accept the license application of such U.S. supplier including any license application of MasterCard, Visa, or American Express, and shall make a determination with respect to the application, including an explanation of any adverse determination, under the condition that a U.S. service supplier notifies China that it has completed its preparatory work …”[4]

As a matter of fact, China has started to coordinate domestic financial infrastructures and promote the internationalization of electronic payment services in early 2019. In addition to the above-mentioned three major payment and clearing institutions that will conduct business in China, the Society for Worldwide Interbank Financial Telecommunication (hereinafter, “SWIFT”) has officially established a wholly-owned Chinese legal entity in Beijing on 6 August 2019[5]; PBC has approved the application of Gopay Information Technology Co., Ltd (国付宝信息科技有限公司) ( hereinafter, “Gopay”) for change of shareholdings; and PayPal's wholly-owned subsidiary, Paypal Network Information Services (Shanghai) Co., Ltd.(美银宝网络信息服务（上海）有限公司) has completed the acquisition of 70% shareholding of Gopay on September 2019.

IV. Financial Asset Management Services

The commitment China made in the Agreement in financial asset management is to “… allow U.S. financial services suppliers to apply for asset management company licenses that would permit them to acquire non-performing loans directly from Chinese banks, beginning with provincial licenses. When additional national licenses are granted, China shall treat U.S. financial services suppliers on a non-discriminatory basis with Chinese suppliers, including with respect to the granting of such licenses.”[6]

On 20 July 2019, Financial Stability and Development Committee under the State Council has issued “Measures for Further Opening up the Financial Sector”[7],where  11 opening-up measures for the financial industry are introduced accordingly, the clause 3 of which stipulates that China permits “overseas asset management institutions to co-establish financial management companies controlled by foreign parties jointly with subsidiaries of Chinese banks or insurers”.

In order to implement the above measures and arrangements, in December 2019, China Banking Regulatory Commission (hereinafter, “CBRC”) and China Insurance Regulatory Commission (hereinafter, “CIRC”) have approved Amundi Asset Management(55%) and BOC Wealth Management Co., Ltd (45%) to jointly establish Huihua Financial Management Co., Ltd.(汇华理财有限公司) in Shanghai, which becomes the first foreign-controlled wealth management company in China[8].

Before that, Amundi Asset as minority shareholder has established a joint venture fund management company, ABC-CA Fund Management Co., Ltd with Agricultural Bank of China and Chinalco Capital Holdings Company Limited (中铝资本控股有限公司); Credit Suisse AG as minority shareholder has formed ICBCCS Management Co., Ltd. (工银瑞信基金管理有限公司) with Industrial and Commercial Bank of China (hereinafter, “ICBC”); and Bank of China has established Bank of China International Management Co., Ltd (中银基金管理有限公) with BlackRock, Inc.

Recently, Goldman Sachs Group, Inc., the leading investment banking, securities and investment management firm in the United States, proposed to set up a new wealth management company with ICBC's wealth management subsidiary. China Construction Bank's wealth management subsidiary is negotiating with the world's largest asset management company, BlackRock, Inc., and Temasek, a state-owned investment company in Singapore, to establish a 60% foreign-owned joint venture in Shanghai.

V. Insurance services

According to the Agreement, “… China shall remove the foreign equity cap in the life, pension, health insurance sectors … remove any business scope limitations, discriminatory regulatory processes and requirements, and overly burdensome licensing and operating requirements for all insurance sectors (including insurance intermediation)…”[9] no later than April 1, 2020. In addition, China shall “… allow wholly U.S.-owned insurance companies to participate in these sectors … no restrictions shall be conducted on the ability of U.S.-owned insurance companies established in China to wholly own insurance asset management companies in China.”[10] Besides, China affirms in the Agreement that the requirement of insurance business operations period prior to the establishment of new foreign insurance companies has been eliminated.

CBRC and CIRC have approved the establishment of Hang An Standard Life Co., Ltd (恒安标准养老保险有限责任公司) and CIGNA & CMC Asset Management Co., Ltd (招商信诺资产管理有限公司) in 2019[11], both of which are foreign-controlled insurance companies. Meanwhile, other four foreign-controlled insurance institutions commencement of business in China are ICBC-AXA Asset Management Co., Ltd. (工银安盛资产管理有限公司), Bocommlife Asset Management Co., Ltd. (交银康联资产管理有限公司), Allianz (China) Holding Ltd. (安联（中国）控股有限公司), and CITIC-Pru Fund Asset Management Co., Ltd. (中信保诚资产管理有限公司).

VI. Securities, Fund Management, Futures Services

Based on the Agreement, Both China and the United States shall “… review and approve a qualified application of a financial institution of the other Party for the license of securities, fund management, or futures…”[12] on a non-discriminatory basis. “The Parties affirm that licensed financial institutions of the other Party are entitled to supply the same full scope of services in these sectors as licensed financial institutions of the Party … No later than April 1, 2020, China shall eliminate foreign equity limits and allow wholly U.S.-owned services suppliers to participate in the securities, fund management, and futures sectors. China affirms that existing U.S.-invested securities joint ventures are allowed to retain their existing licenses when they become U.S.-controlled, majority U.S -owned, or wholly U.S.-owned securities companies. ”[13]

Prior to the signing of the Agreement, the China Securities Regulatory Commission (hereinafter, “CSRC”) has planned to lift restrictions on the cap of foreign shareholding of securities companies, fund companies and futures companies on 1 December 2020, 1 April 2020 and January 2020 respectively[14].

On November and December 2019, the first batch of foreign-owned companies, Nomuroai Orient International Securities Co., Ltd. (野村东方国际证券有限公司) and J.P. Morgen Securities Co., Ltd (摩根大通证券（中国）有限公司) commence their business in China successively. Besides, a lot of foreign shareholders are also seeking controlling status in multiple joint venture securities firms through capital increase or share transfer, such as Credit Suisse Founder Securities Limited (瑞信方正证券有限责任公司), Morgan Stanly Huaxin Securities Limited (摩根士丹利华鑫证券有限责任公司), GSGH Securities Limited (高盛高华证券有限责任公司). In December 2019, JPMorgan Chase & Co. has submitted application materials to CSRC for changing the shareholding of J.P. Morgen Securities Co., Ltd from 49% to over 50%, which will become China's first majority foreign-owned futures company.

As a matter of banks, all 45 securities investment fund custodians are Chinese-funded institutions, including 24 Chinese-funded banks and 21 Chinese-funded brokers. Among the 19 qualified foreign institutional investors (QFII) custodian banks, except HSBC (China) Co., Ltd., Citibank (China) Co., Ltd., Standard Chartered Bank (China) Co., Ltd., Deutsche Bank (China) Co., Ltd., DBS Bank (China) Co., Ltd. and Mitsubishi Outside of the Tokyo UFJ (China) Co., Ltd., the remaining 13 banks are wholly Chinese-funded.

Conclusion

As stated in the Objectives of the Chapter 4 of the Agreement, the core idea behind this chapter is to establish a “fair, effective and non-discriminatory” market access environment for each other’s companies in the financial field, which will enhance the mutual trust, strengthen China-US cooperation, effectively manage and resolve differences in the financial field, and promote the stable development of China-US economic and trade relations. 

There are still differences to be resolved, but the phase-one Agreement has injected positive energy into the stability and development of China-US economic and trade cooperation and the development of bilateral relations. We will keep track of the implementation of the Agreement as well as the progress of the phase-two negotiation and will continue to share with you our opinions in a timely manner.

[1] Art. 4.3.1 of the Agreement.
[2] The announcement can be found at http://beijing.pbc.gov.cn/beijing/132024/3753866/index.html
[3]For more details, please refer to “officials of PBC, NDRC, MoF and SCRC answered questions on the Interim Measures for the Management of Credit Rating Industry" at http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/3930443/index.html
[4] Art. 4.4.1 of the Agreement.
[5] http://www.jjckb.cn/2019-08/13/c_138304926.htm
[6] Art.4.5.2 of the Agreement.
[7] The 11 measures can be found at http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/3863019/index.html
[8] http://www.cbirc.gov.cn/en/view/pages/ItemDetail.html?docId=862814
[9] Art. 4.6 of the Agreement.
[10] Ibid.
[11] The relevant approvals can be found at http://www.cbirc.gov.cn/cn/view/pages/ItemDetail.html?docId=342307&itemId=4110&generaltype=1 and http://www.cbirc.gov.cn/cn/view/pages/ItemDetail.html?docId=884612&itemId=869&generaltype=1
[12] Art 4.7 of the Agreement.
[13] Ibid.
[14] The announcement can be found at http://www.csrc.gov.cn/pub/newsite/zjhxwfb/xwdd/201910/t20191011_364251.html