./.RESTRICTEDWORLD TRADE
ORGANIZATIONS/FIN/W/18
23 September 2002
(02-5076)
Committee on Trade in Financial Services Original:  English
COMMUNICATION FROM THE EUROPEAN COMMUNITIES
AND THEIR MEMBER STATES
TRM China - Financial Services
The attached communication has been received from the delegation of the European
Communities and their Member States with the request that it be distributed to Members of the
Committee on Trade in Financial Services.
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1. The European Communities and their Member s States are transmitting comments and
questions in advance of the October meeting of the Committee on Trade in Financial Services in orderto give time for the Chinese authorities to provid e the relevant information, including information
specified in Annex 1A of the Accession Protocol . We would like to underline that these comments
and questions are based on information obtained indirectly.
A. T
RANSPARENCY AND TRANSPOSITION INTO DOMESTIC LEGISLATION
2. In the insurance sector, transparency is a major concern. In particular, the new regulation on
foreign-funded insurance companies (adopted on 22 December 2001 and entered into force on
1 February 2002) contains vague provisions, with unspecified criteria, referring to unspecified lawsand regulations, and is silent on key issues, in particular on internal branching and application to
several open cities at the same time.
• Could China explain the regime of internal  branching, in particular the geographic
scope, and the legal source of this regime ? Could China confirm that a foreign company
can be granted several licenses at the same time to operate in different cities, be it
primary or secondary establishment, without having first to establish a track record inone city of operation?
B. U
NEXPECTED DIFFICULTIES
3. In the banking sector, the issue of minimum capital requirements for direct branches of
foreign banks is cause for concern. According to the new regulation governing foreign financialinstitutions (adopted on 12 December 2001 and entered into force on 1 February 2002) and to its
implementing rules (adopted on 29 January 2002), direct branches of foreign banks have to put capital
from RMB 100 million up to RMB 600 million (the latter amount to carry out the full range of
banking services, with corporations and individuals, in RMB and foreign currency). Those amounts
are extremely high and do not take into account the possible guarantee of the mother company, eventhough the branch has no legal personality.S/FIN/W/18
Page 2
• Could China explain how those requirements can be reconciled with the national
treatment undertaken in its specific commitme nts, and if any change of those rules is
contemplated?
4. The new regulations also raise a tax issue. Chinese tax authorities charge a 7% business tax
on the gross margin foreign banks earn when they use capital to fund loans to customers, but only 7%of the net margin when the beneficiary of the loan is a Chinese bank.
• Could China explain the rationale for this di fference of treatment and indicate if any
change is contemplated to ensure a level-playing field?
5. It also appears that foreign banks are limited to opening only one new branch per year.
• Could China confirm this rule? How woul d it be reconciled with its specific
commitments?
2. Success stories
6. In the securities sector, the regulations on fund management and trading and underwriting of
securities adopted in 2002, as well as the current process of licensing, seem to proceed smoothly. It is
worth noting that trading of A shares is not committed, but that a license to perform such an activity
has been granted to a joint-venture with a foreign partner.
• Could China indicate whether it intends to open trading of A shares to foreign
companies, and, if not, how can the MFN prin ciple be respected given that a license has
already been granted to a joint-venture with a foreign partner?
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