RESTRICTEDWORLD TRADE
ORGANIZATIONS/FIN/M/43
4 December 2003
(03-6434)
Committee on Trade in Financial Services
REPORT OF THE MEETING HELD ON 1 DECEMBER 2003
Note by the Secretariat1
1. The Committee on Trade in Financial Services held a meeting on 1 December 2003.  The
proposed agenda is contained in airgram WTO/AIR/2219.
2. The Chairman indicated that he had an announ cement to make with regard to the proposed
item E ("The GATS and the Annex on Financial Services – International Regulation and Financial
Services").  On Friday, 28 November, the representative of Antigua and Barbuda informed the
Secretariat that unfortunately, due to unforeseen circumstances, he would not be able to attend the
meeting, and requested that the item be placed on the agenda of the next Committee meeting.  The
Chairman therefore suggested that the Committee revert to this item at the next meeting or at a future
meeting, depending on the availability of the delegations concerned, who were all non-resident in
Geneva.  The Chairman also noted his intention under "Other Business" to refer to a recent document
by the OECD on managing request-offer negotiations on insurance services.
3. The representative of the United States asked, regarding item E, whether it was the
proponents' request to retain this item on the agenda of the next meeting.  The Chairman confirmed
that this was the case.
4. The Committee adopted the agenda with these changes.
A. ADOPTION OF THE ANNUAL REPORT TO THE COUNCIL FOR TRADE IN
SERVICES
5. Pursuant to the annual reporting requirements to the Council for Trade in Services, the
Chairman drew Members' attention to documen t S/FIN/W/31, containing a draft report of the
Committee's activities since the last update submitted to the General Council before the Ministerial
Session held in Cancun (Mexico).  Once adopted, the report under consideration, together with the
update in document S/FIN/9, would complete the reporting requirement for 2003.
6. With regard to paragraph 2 of the draft report, the representative of the United States
suggested that a sentence be inserted in order to reflect that some Members had expressed concern
about other Members not yet having ratified the Fifth Protocol and the need for the latter to provideprogress reports on efforts under way.
7. Noting the comment by the United States, the Ch airman suggested that the following sentence
be inserted at the end of the second paragraph of the document:  "Some delegations expressed concern
that there are still a few Members who have not yet accepted the Fifth Protocol."
8. The representative of Japan supported the sentence suggested by the Chairman.
9. The Committee adopted the annual report, with the change suggested by the Chairman.
                                                     
1  This document has been prepared under the Secretariat's own responsibility and without prejudice to
the positions of Members and to their rights and obligations under the WTO.S/FIN/M/43
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B. ACCEPTANCE OF THE FIFTH PROTOCOL TO THE GENERAL AGREEMENT ON
TRADE IN SERVICES EMBODYING THE RESULTS OF THE FINANCIAL SERVICES
NEGOTIATIONS
10. The Chairman recalled that three WTO Members had yet to accept the Fifth Protocol, namely:
Brazil, Jamaica, and the Philippines.  He invited those three Members to provide information on the
status of their domestic processes.
11. The representative of Brazil said that the acceptance of the Fifth Protocol was still following
due legislative process.
12. The representative of the European Communities expressed his concern that all the parties to
the Protocol had not ratified it.  He asked the delegations concerned for more detailed information on
the exact status of those ratification procedures.
13. The representative of Japan also requested more detailed information from the three Members
concerned on the status of their domestic processes.  He urged those Members to finalize the
acceptance procedures as soon as possible.
14. The representative of the United States supported the statements made by the European
Communities and Japan. She also asked whether the Chairman could contact the other two
delegations – Jamaica and the Philippines- to see if they might be prepared at the next meeting to givesome indication of the status of their ratification processes.
15. The representative of Canada said that his country attached great importance to this issue and
requested further detail on the precise status of the ratification procedures in these three Members.
16. The representative of Brazil said that he would convey to his authorities the requests for
further details on the status of these procedures.
17. The Chairman noted the desire of some Members to obtain further details on the status of the
relevant domestic procedures in the three Members concerned.  He also said that he would contact the
representatives of Jamaica and the Philippines to see whether it would be possible for them to provide
an update on the status of their ratification procedures at the next meeting
18. The Committee took note of the statements made and decided  to revert to this agenda item at
the next meeting.
C. TECHNICAL ISSUES
19. There were no interventions under this agenda item.
20. The Committee decided to revert to this agenda item at the next meeting.
D. TRANSITIONAL REVIEW UNDER SECTION 18 OF THE PROTOCOL ON THE
ACCESSION OF THE PEOPLE'S REPUBLIC OF CHINA
21. The Chairman recalled that the Committee was mandated to conduct this review of the
implementation by China of its commitments in the WTO pursuant to section 18 of the Protocol on
the Accession of the People's Republic of China.  Last year, the Committee conducted this review at
its meeting on 21 October and the report of that review could be found in document S/FIN/7.
22. For this year's review, written communicatio ns had been received from the following
Members: Japan (S/FIN/W/30); the European Communities (S/FIN/W/32);  Canada (S/FIN/W/33),S/FIN/M/43
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Chinese Taipei (S/FIN/W/34); and the United St ates (S/FIN/W/35).  The Chairman also drew
Members' attention to two documents submitted by China to the Council for Trade in Services.  The
first document, circulated as S/C/W/234, containe d information required by Annex A of China's
Working Party report, including sections dealing with financial services.  The second document,
circulated as S/C/N/260, contained information on the administrative rules governing auto-financingcompanies.
23. The representative of China expressed his hope that his statement would help Members better
understand the efforts and achievements made by China in respect of trade in financial services in the
past year.  He added that an important delegation made up of senior officials from competent
departments, including China Banking Regulatory Committee (CBRC), China Insurance Regulatory
Committee (CIRC) and the Ministry of Commerce (MOFCOM) was sent to this meeting.
24. Based on the achievements in the first year after its accession to the WTO, China had made
enormous efforts to comply with the broad a nd substantive commitments undertaken on trade in
services.  The first part of this statement w ould deal with the latest developments in the
implementation of China's commitments on financial services.  The response to some questions raised
by Members would follow in the second part of this introduction.  A copy of the statement had been
provided to the Secretariat for circ ulation to Members after the meeting.
25. China had improved both the legal system and the transparency of the financial sector.  Since
last year's transitional review mechanism (TRM), the Chinese government had finalized the Measures
for the Administration of Automobile Financing Institutions  and its implementing rules, which would
make it possible for foreign non-bank institutions to en gage in automobile financing in China.  China
had solicited comments from the public, including foreign investors, many times during the process ofdrafting this measure, and some of these comments were incorporated into the finalized measure.
26. In the second year of WTO membership, with the phase-in of China’s commitments, more
market access was provided to foreign financial services providers and more inflows of foreign direct
investment took place.  This represented a new feature of China’s financial services in the last year.
In the case of banking, in the period between the accession and end October 2003, 28 representativeoffices of foreign-funded banks were approved to be established; 14 applications from foreign banks
to establish branches were accepted, and 12 were approved; 48 foreign bank institutions in Shanghai,
Shenzhen, Tianjin, Dalian, Guangzhou and Qingdao were approved to operate RMB local currency
business.  The total number of foreign bank institutions operating the latter kind of business in China
amounted to 83.  Regarding insurance, in the period between the accession and end October 2003,
37 foreign insurance companies from 13 countries and regions (including 20 life insurers, 14 property
insurers and three reinsurance companies) were approved to establish 62 insurance branches(including proposed ones).  The geographic restrictions over 10 cities had been removed for foreign
insurance business. In the case of securities, in the first ten months of this year, 11 foreign-invested
fund management companies, two foreign invested securities companies and six foreign special
members of stock exchange were approved to access into China.
27. Furthermore, China had fulfilled its commitments in some areas ahead of the schedule in the
WTO.  For example, with respect to insurance, in March 2003 CIRC announced that foreign life and
non-life insurance companies and insurance brokers might provide services in Beijing, Tianjin and
Suzhou.  On 16 June 2003, CIRC announced that the above-mentioned companies might also provide
services in Chengdu and Chongqing.  These regions had been scheduled to open to foreign insurers
only from the end of this year.
28. Liberalization measures had also been taken in the securities area.  The Provisional Measures
on Administration of Domestic Securities Investmen ts of Qualified Foreign Institutional Investors
(QFII)  officially became effective in December 2002.  This was a transitional measure for the purpose
of attracting foreign investments and liberalizing the securities market within certain limitations in theS/FIN/M/43
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light of the fact that the free convertibility of RMB had not been realized.  To date, nine foreign
financial institutions had been qualified as QFII, for which about 1.1 billion US dollars had been
approved as foreign exchange quota.
29. Advance compliance was a clear indication of the positive and serious spirit with which the
Chinese government was performing its commitments.  To his knowledge, generally foreign financialinstitutions were satisfied with the improvements made by China in policy transparency, operation
environment and market access opportunities.  These foreign financial institutions had confidence in
the stability and growth of China’s economy, and were optimistic with regard to their business future
in China.
30. He then turned to the second part of his statement and provided responses to some questions
raised repeatedly by the five Members that had made written submissions before the meeting.
31. Regarding the questions on the geographic restrictions on foreign insurance companies, the
representative of China said that three years after China’s accession (i.e. starting from 11 December
2004), there will be no geographic restrictions on foreign insurance companies anymore.  By that
time, foreign insurance companies meeting certain qu alifications will be allowed to apply for the
establishment of operational institutions nationwide.  However, they must approach CIRC for
approval.  This approval procedure was based on the prudential supervision of the regulatory bodyover insurance enterprises and applied to both foreign and domestic insurers, thus granting national
treatment to all foreign insurance companies.  Furt hermore, three years after China’s accession to the
WTO, when geographic restrictions are lifted, provincial branches of foreign insurance companies
will be allowed to conduct insurance business in any city or area within the province pursuant to
relevant regulations of CIRC.
32. Regarding the questions concerning capital requirements for insurance companies and their
branches, he said that the minimum capital requirements of an insurance company, be it domestic or
foreign-invested, were set out in the "Insurance Law", which was adopted by the National People’s
Congress of China.  These requirements were integral parts of the prudential regulatory framework
and applied to both domestic and foreign insurers. The determination of minimum capitalrequirements was a legitimate right of a WTO Member’s regulatory authorities and went beyond the
scope of GATS rules and China’s accession commitments in the insurance sector.  Therefore, it was
not appropriate to discuss it under the Transitional Review Mechanism. Regarding the capital
requirement for the establishment of new branches, China was currently drafting the detailed rules of
the Administrative Regulation on Foreign-Invested Insurance Companies  and working on the revision
of the Administrative Regulation on Insurance companies , where consideration was being given to the
possible relaxation of capital requirements for the establishment of new branches.  However, thiscapital requirement was aimed at prudential re gulation and was irrelevant to China’s accession
commitments.
33. On the questions concerning minimum working capital requirements for direct branches of
foreign banks, he said that China believed that a WTO Member was entitled to set its own minimum
working capital requirements for branches of foreign banks.  Some other WTO Members also haddifferent working capital requirements for branches of foreign banks, although levels might differ.
Secondly, China’s minimum working capital requirement was a prudential requirement, which was
set up according to the development level of its fi nancial sector and the regulatory capacity of the
financial authority.  The requirement also tried to cater for the demands of foreign bank branches in
terms of their business operation. Thirdly, along the same line, China also had working capitalrequirements for branches of domestic banks.  However, with the improvement of the risk
management system of foreign banks and the development of China’s regulatory framework, CBRC
would relax the minimum capital requirement for foreign banks accordingly.  Finally, he reiterated
that the determination of the minimum capital requirements was a legitimate right of a Member toS/FIN/M/43
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regulate, and it was irrelevant to GATS rules and China’s accession commitments.  He expressed the
hope that future TRM processes would not be bothered by such irrelevant questions.
34. Regarding the questions concerning licensing procedures for foreign banks (i.e. initial review
and final approval stages), the representative of China said that the licensing procedure for foreign
banks was a domestic regulation issue in nature, based on the need of prudential regulation and inconformity with the internal working formality of China’s regulatory body.  This licensing procedure
applied equally to foreign-invested banks and domestic banks.  Secondly, according to China's
research, many WTO Members had similar requirements with regard to licensing procedures for the
approval of foreign banks. Certain developed-country Members also required a "preliminary review"
or "pre-review" stage before final approval.  Thirdly, at present, Members were engaged in
discussions on a possible multilateral discipline on licensing procedures, and therefore it was
inappropriate for the Committee to review China’s licensing procedures before any possible disciplinein the future.
35. Auto financing regulation did not permit direct branching from abroad.  The reasons for not
allowing direct branching from abroad were the following.  Firstly, auto-financing institutions
belonged to non-banking financial institutions under China’s regulatory system, the administration of
which was conducted by CBRC pursuant to relevant regulations governing financial institutions.However, companies engaging in the auto financing business were regulated by different regulatory
authorities in other Members.  Therefore, China could not establish effective communication with
foreign regulatory authorities.  As a result CBRC’s found it extremely difficult to exchange
information with foreign regulatory bodies and to regulate.  Secondly, this requirement applied to
both domestic and foreign companies.  For the purpose of prudential regulation, domestic autofinancing enterprises were also not permitted to establish branches.
36. The representative of Japan commended China's efforts to meet its commitments, thereby
increasing market access and transparency.  He said that his comments would focus not necessarily on
Japan's interests but also on mutual interests.  Japanese manufacturing firms had been making
substantial investments in China, and in order to continue to see investments flowing into the Chinesemarket, financial services firms must accompany these manufacturing firms.  That was why meeting
China's commitments in the financial services sector was a matter of mutual interest.  He raised three
questions on the insurance sector and three questions on banking.
37. The questions on insurance were the following: a) On the minimum capital requirements for
foreign-invested insurers, can China confirm that th ey are required to put in place RMB 200 million
for the initial branch, and additional RMB 20 million for each subsequent branch, up until RMB 500
million?  If so, can China confirm the understanding that the distinction of national and regionallicences no longer exists?; b) on the geographic restrictions, can China indicate whether after
December 2004, foreign-invested insurers licensed to provide services in certain cities will be allowed
to do business in other cities, solely based on existing licenses, without applying for a new license?  If
not, how will the licence requirements work when the geographic restrictions are lifted?; and c) noting
that not all joint-venture insurers are allowed to issue contracts denominated by foreign currency, canChina elaborate on the prudential justification for the regulation and on the specific criteria upon
which approval is based?  Since no limitation has been scheduled in this regard, can China confirm
whether domestic insurers are equally regulated?
38. Regarding banking services, he said that Japan had repeatedly voiced its concern over the
proposed inter-bank regulation, and would like to know what the current status was.  He asked
whether China could provide solid prudential grounds for this measure, which was planned to take
effect in 2006, the year in which foreign financial service firms would be permitted to provide a full
array of banking services.  The representative of Japan reiterated that prudential measures could not
be used as a means of avoiding China's commitments and that China's national treatment obligation
was based upon whether equal competitive conditions were provided. In his view, the proposedS/FIN/M/43
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measure could not be justified from any of those points of view.  Secondly, he expressed his concern
about the regulation limiting foreign banks to open only one new branch per year.  He asked whether
China would consider amending this regulation in accordance with the comments received.  If that
was not the case, he asked whether China could elaborate on the prudential grounds for the regulation
and confirm whether domestic banks were bound as well.  Finally, he said that Japan remainedconcerned about minimum capital requirements.  Given the importance of branching as a means of
reaching markets, such requirements would inhibit foreign banks' ability to provide their services.
Recognizing the extremely high level of such requ irements by international standards, he asked
whether China could explain exactly how the requirements might be considered as prudential and how
they might be considered as consistent with national treatment.
39. The representative of the European Commun ities thanked the Chinese delegation for the
preliminary information provided.  He congratulated China for the openness of its financial sector to
foreign investors.  The figures provided by China were quite impressive.  Making reference to a
previous comment by China, he said that the questions raised by Members on China's minimum
capital requirements did fall in the TRM framework.  Since those measures would have an impact on
financial services trade, the Committee was the appropriate forum to deal with them.
40. The representative of the United States th anked China for the information provided and
sought clarification on some issues.  Regarding China's statement that three years after accession all
insurance concerns would not be subject to geographical restrictions, she sought clarification as to
whether that included non-life insurance as well.  Secondly, she shared the point made by Japan
regarding licensing and capital requirements.  She recognized Members' right to take prudential
measures, but the questions raised were based on the United States' understanding of China'scommitments in the TRM process, as indicated in China's Working Party report.  The United States
would not like to see certain measures being taken in such a manner as to make any sectoral
commitments a nullity.  Thirdly, she sought confirmation from the Chinese delegation as to whether
joint venture insurers for which CIRC had approved more than 50 per cent foreign ownership would
be allowed to expand geographically in their current ownership structure. Regarding China'scommitment to open its pension market to international participation by 11 December 2004, she asked
what China's plans were for implementing this  commitment, and when the draft implementing
regulations would be circulated for public comment.  She also asked what plans China had to
deregulate the interest rates charged on auto financing.  Finally, she expressed concern about the
extremely high level of minimum capital requirements.  The United States was not challenging
Members' right to set minimum capital requirements for prudential reasons.  The concern was that, if
set at a very high level, those requirements could render any benefit that China had offered, andcommitted to, ineffective.
41. The representative of Chinese Taipei commende d China for its initial statement.  Several
changes had taken place in China's financial market since the previous TRM exercise.  Those changes
included, among other things, the creation of a separate banking supervisory authority (CBRC), the
renewed energy to dispose of the massive non-performing loans in the banking sector, and theintroduction, as China indicated, of the so-called QFII system in the capital market.  These policies
were welcome.  However, there were a few areas of concern, namely the excessive capital
requirements for foreign banks on a branch by branch basis, as well as the complicated and time-
consuming licensing procedures.  Chinese Taipei had not been the only one raising these concerns.
His delegation was pleased to hear, however, that the Chinese authorities were considering relaxingthe working capital requirements for foreign ba nks using the so-called risk management capacity
benchmarks.  Chinese Taipei would welcome any further improvement in the future.
42. The representative of Canada recognized that  China had made significant efforts to comply
with its accession commitments on financial services.  For the most part, Canada considered the
compliance as satisfactory.  Canada's concerns related to specific aspects of the regulatory frameworkand not to the overall direction of China's policy over the last year.  Canada sought to betterS/FIN/M/43
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understand the prudential reasoning behind certain regulations, and to underline the importance of
transparency of the regulatory regime.  Further, it would be interesting to get more information on
certain licensing procedures.  In particular, Canada was interested in receiving further detail on recent
or planned changes to China's arguably high capital requirements for banking.  It would also be
interesting to have more information on the prudential basis for licensing procedures applicable tobranches, which could be viewed as somewhat burdensome.  He looked forward to written replies to
the questions raised.
43. The representative of Norway welcomed the significant progress made by China in
implementing its WTO commitments on financial services.  He raised the following questions
concerning China's implementation in the areas of insurance and reinsurance: a) Can a Chinese owned
and/or registered vessel in international traffic (not cabotage) buy insurance directly from an
insurance company not incorporated or present in China?; b) can such a company, as described in theprevious question, approach Chinese shipowners or brokers with marketing offers? Are there any
taxes applicable to such cross-border business?; and c) can a Chinese owned and/or registered vessel
in cabotage trade (domestic traffic), on its own account, insure the vessel, cargo and other liabilities
directly with a foreign insurer not incorporated or present in China, when there has not been any prior
solicitation or active marketing from the foreign insurer towards the Chinese market?
44. In addition, he said that direct cross-border reinsurance was subject to compulsory cessions to
ChinaRe, amounting to 15 per cent this year, and to be phased out in 2006. He asked how that practice
corresponded with China's commitments under modes 1 and 2 for reinsurance, where no limitations
had been entered.
45. According to his information, regulations had been recently introduced with regard to
domestic insurance companies' access to foreig n exchange related to payment for outward
reinsurance.  It was Norway's understanding that for certain groups of insurance classes (such as
property insurance, freight, ship and aviation insurance, energy and liability insurance), the domestic
insurance company could apply to the State Administration of Foreign Exchange for purchasing
foreign exchange to make the reinsurance payment if  either of the following conditions was satisfied:
a) The maximum insurance liability for a single insurance contract exceeded RMB 50 million;  or
b) the cumulative RMB premium income for a single insurance contract type exceeded the sum of the
capital and the accumulation fund of that company.  That appeared to be a de facto  restriction on
cross-border reinsurance.  If so, he wondered how this corresponded to China's commitments on
reinsurance.
46. Finally, he asked whether there were any restrict ions (quantitative or otherwise, including any
requirement of foreign exchange earnings, whether in the form of a regulation or practice), on theability of a Chinese company to obtain foreign exchange to buy direct non-life insurance from
insurance companies not incorporated or present in China, provided that proper documentation of the
transaction was put forward to the relevant authorities.
47. The representative of Australia welcomed the opportunity to discuss China's progress in
implementing its WTO commitments on financial services, and thanked the Chinese delegation for
the introductory statement.  Australia was encouraged by the progress that had been made by China in
the transition from existing systems to those needed for a competitive market economy.
48. Australia was interested in encouraging progress in those areas of implementation where
regulations remained burdensome.  Many of Australia's concerns in this sector were consistent with
those raised by other Members in their formal communications.  Australia was specifically interestedin a number of questions on insurance and banking.  Firstly, on insurance, Australia was interested in
learning more about the steps China was taking to allow foreign insurers firms to expand
geographically.  He asked in that regard whether after 2004 foreign insurers would be allowed to
expand geographically without further approval by CIRC. Secondly, he asked whether the insuranceS/FIN/M/43
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product approval process could be streamlined in order to avoid multiple approvals in separate areas.
Canada raised related questions in his submission.  Thirdly, he asked about China's intentions with
regard to the circulation for public comment of the draft implementing regulations on access to the
pension market.  This was a question also raised by the United States.  Fourthly, Australia was also
interested in the issue of capital requirements for foreign banks.  He wondered whether there wereproposals to move to a more efficient and less burdensome method of applying those capital
requirements.
49. The representative of China said that some of the comments made and questions raised by
other Members had already gone beyond the scope of China's TRM. The TRM was only related to
China's compliance with its commitments resultin g from accession negotiations. But some delegations
were talking about issues that should be discussed in the current round of multilateral negotiations –
the Doha Development Round- or even in the following round of multilateral trade negotiations. Hethen turned to the questions raised.
50. Regarding insurance, he said that several ques tions related to CIRC's daily regulatory work
over foreign-invested insurance companies.  For example, the questions raised by Australia and
Canada on approval requirements and procedures for new life insurance products, on reserving
requirements for life insurance products, on outward and inward cross-border insurance withassociated enterprises, and on the management of  foreign exchange control of insurance business.
These regulatory measures were based on prudential principles and were legitimate. CIRC applied
these measures to both foreign and domestic insurers on an equal basis.  The regulatory rights of
CIRC should be respected.  Besides, the regulations governing the above-mentioned issues were all
published and publicly available.
51. Questions related to licensing procedures of insurance firms and their branches were, as
already stated, transparent and publicly available.  Members should not ask China to take extra
obligations on this particular issue.  Up to no w, China had already issued 62 licenses to foreign-
invested insurance companies.  All these license s were issued in accordance with previously
published licensing procedures.  With regard to the number of licenses that CIRC could grant toforeign insurers at one time, the licenses procedures in the relevant laws and regulations, as well as
the prudential principle, should be followed.  It was not appropriate to set a compulsory number of
licenses for foreign insurers to be issued by CIRC at one time.
52. Concerning future liberalization of insurance services, China had made enormous efforts to
comply with the broad and substantive commitments in this sector.  For the phase-in commitments in
the insurance sector (e.g. elimination of geographical restrictions and the opening of pension
services), China would implement its commitments in due time. It was not appropriate to discussfuture liberalization in the context of the TRM.
53. Regarding the questions on language requirements for senior management personnel of
foreign-invested insurance companies, he said th at CIRC had already changed the related qualification
requirements contained in the measures governing the qualifications of senior management personnel
of insurance companies.  The language requirement was no longer in force.
54. He then turned to the questions concerning  the commitment to permit foreign financial
institutions to provide local currency business to Chinese enterprises two years after accession. In that
regard, he said that China would implement thos e commitments in due time according to what was
stated in the schedule.
55. With regard to the 40 per cent limitation on interbank borrowing, he said that at present there
was no such regulation for foreign banks.  The requirement did not exist at this moment. China was of
the view that future liberalization should not be discussed in the context of TRM.S/FIN/M/43
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56. Some of the questions raised were related to CBRC's prudential regulation and administration
of foreign invested banks (e.g., the requirement to deposit 30 per cent of working capital of foreign
banks at a local bank).  These measures were for the purpose of regulating the operations of foreign
banks, and were based on prudential principles.  The objective was to keep away financial risks
arising from the operation of foreign banks.  These prudential regulations to prevent financial risksshould also be respected.
57. There was one question on the requirement that the value of foreign banks' foreign currency
deposits within China should not exceed 70 per cent of the value of the banks' foreign currency assets
within China.  In reply, the representative of China said that prior to his country's accession, the ratio
was 40 per cent.  After accession, the ratio was increased substantially, up to 70 per cent. China would
further relax this ratio during the five-year phase-in period mentioned in the schedule.
58. Turning to the issue of the requirements  imposed on auto-financing institutions
(e.g. minimum capital requirements and others), the representative of China said that they were of a
prudential nature, based on the fact that the auto-financing market in China was just at a beginning
stage.  The regulatory body had insufficient risk control capacity and lacked supervision experience.
Besides, all these requirements, including minimum capital requirements, were non-discriminatory
and applied to both foreign and domestic auto-financing companies.
59. There was also a question on fund management companies not allowed to manage assets of
institutional investors.  In accordance with China's existing laws and regulations, a fund management
company, whether domestically-owned or joint-venture, was not allowed to manage assets for
institutional investors because this service did not exist in China due to the special situation of the
Chinese securities market.  In other words, this service for institutional investors was a new service inChina, and was therefore not covered by China's commitments.  Apart from that, the questions on
minimum capital requirements and licensing procedures, which were similar to the ones raised with
regard to banking and insurance services, had already been answered.
60. Finally, he said that since the Chinese delegation received the questions by Norway just
before the meeting, it was not possible to reply to those questions at that moment.  He suggested thatthose issues were dealt with bilaterally afterwards.
61. The representative of the United States took note of the responses provided by China.
However, she repeated her question as to whether the plans mentioned in China's opening statement
regarding the elimination of geographical requirements for insurance establishments included non-life
insurance companies as well.  She said that she was simply asking for a clarification on that matter.
62. The representative of the European Communities said that China had not addressed a number
of questions raised in the written communication by the EC.  He then repeated those questions.
Firstly, he asked whether the new rules for minimum capital requirements in the insurance sector
would also apply to reinsurance.  Secondly, he asked whether it was possible for foreign life insurance
undertakings in China to receive licenses for several cities at the same time.  He clarified that the EC
was not looking for a quota.  Rather, it was seeking national treatment.  Thirdly, in the case of
banking, he said that minimum capital requirements and capital adequacy ratios were applied to eachbranch and not taking into account the aggregated presence of the foreign bank in China.  He asked
for further details on China's plans to review these re quirements on the basis of the risk profile of the
institutions operating in China.  Fourthly, with rega rd to the opening of branches in banking, he said
that according to his understanding, it was not possible for foreign banks to open more than one
branch a year, while Chinese banks had had the possibility to open several branches in the same year.He asked what the prudential reason was for such differential treatment.  If the measure was for
prudential reasons, the same reasoning should apply to both foreign and Chinese banks.S/FIN/M/43
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63. In the case of securities, the representative of the European Communities raised the issue of
the choice of partners in joint-ventures.  There were currently limitations on the kinds of partners that
could be chosen by foreign undertakings in those joint-ventures.  According to China's Working Party
Report, there should be free choice of partner, including outside the sector.  He asked if China could
explain why this choice was limited, in spite of the commitment undertaken in the Working Partyreport.  Finally, he said that a number of quest ions had been raised in the EC communication
regarding car financing.  Apart from minimum capital requirements, there were other conditions
imposed on these institutions in order to be eligible to get a license, such as restrictions on total assets.
He noted the fact that these restrictions were applied equally to both foreign and national companies,
but he said that the commitments were not only about national treatment. Commitments were also
about market access.  For instance, there was a limitation on the size of insurance companies eligible
to get a license, while no such limitation had been scheduled for car financing.  He asked thereforewhy China imposed such conditions to get a license in the auto financing activity, and how they fit
with its commitments (i.e. "none" in market access).
64. The representative of China referred firstly to the question by the United States – whether a
joint-venture with foreign ownership exceeding 50 per cent would be allowed to set up branches.  He
replied in the affirmative, and added that after geographical restrictions had been lifted three yearsafter accession, according to relevant laws and regulations, all joint venture insurance companies
would be allowed to establish branches.  With regard to the so-called national treatment for the
approval of the number of branches of foreign insurers, he said that it was not appropriate to set up a
compulsory number of licences to be issued to foreign insures by CIRC at one time. Licenses were
issued on the basis of prudential principle.  China did not agree that the national treatment meant thatCIRC had to issue licenses to branches of foreign insurers as many as their domestic counterpart.
And there was not such a commitment in China's schedule.  Lastly, he said that regulations governed
all auto-financing companies, not only foreign companies.  All the requirements applied to both
domestic and foreign auto financing companies.  As said, those requirements were based on purely
prudential considerations.
65. The representative of the Unites States repeated her request as to whether non-life insurance
companies would also benefit from the lifting of geographical limitations.  Secondly, she sought
clarification as to whether any joint venture with more than 50 per cent foreign ownership would be
allowed to expand geographically in their current ownership structure.
66. The representative of Australia asked whether foreign banks were limited to applying for one
additional branch at a time, unlike their local counterparts.  He further asked whether China intended
to lift this restriction.
67. The representative of Canada said that his in terest was to improve his understanding of the
prudential rationale behind certain regulations, for instance, on multiple product requirements for the
same insurance product.  Also, it would be interes ting to know the prudential reasons for the reserving
requirements for life insurance products.
68. The representative of China said that his delegation had demonstrated sufficient cooperative
spirit by responding as many questions as possible.  It was not his delegation's fault if other
delegations missed China's message.  If Members wanted to seek further clarifications, the Chinese
experts would be available this week to engage in further discussions.  He said that his delegation had
concluded its job for the day.
69. The representative of the United States found distressing to hear from China that Members
could not seek a clarification because they would be accused of not having paid attention to the
statement being delivered.  She said she asked a specific question on non-life insurance services, and
she did not hear a specific answer to that questi on.  Her intention was just to clarify something thatS/FIN/M/43
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had been said by China in its opening statement.  She was very concerned that a clarification on that
had not been provided.
70. The representative of Japan asked whether China could explain what the situation was with
respect to the proposal on interbank regulation.  Secondly, he asked how the licensing requirements
would apply on insurance once the geographical restrictions had been lifted.
71. The representative of the China confirmed that the response to the clarification sought by the
United States had already been included in his opening statement.  He added that China had already
responded to the questions raised by Japan.  If Members needed more clarifications on his statement,
they could approach the Chinese experts for further details.
72. The representative of the United States took note of the statement by China and said that
simply talking to technical experts after the TRM had concluded did not respond to a question or a
clarification expressly asked at the TRM meeting.  She expressed appreciation for the availability ofthe Chinese experts, but to communicate with those experts after the TRM had concluded did not
satisfy the kind of responsiveness that the United States was seeking at the TRM today.
73. By way of conclusion, the Chairman invited the Committee to take note of all the statements
made.  Secondly, he requested the Secretariat to prepare a report, to be presented to the Council for
Trade in Services on Friday 5 December.  It would be a factual report, stating basically the following:
(a) that, pursuant to section 18 of the Protocol on the Accession of the People's Republic
of China, the Committee conducted a review of the implementation by China of the
WTO Agreement and of related provisions of the said Protocol, in the meeting held
on 1 December 2003;
(b) that written communications had been received from five WTO Members, namely
Japan, the European Communities, Canada, Chinese Taipei, and the United States;
and
(c) that the details of the discussion, including all the interventions made at the meeting,
would be found in the meeting report, to be issued as document S/FIN/M/43.
74. The Committee so decided.
E. RECENT DEVELOPMENTS IN FINANCIAL SERVICES TRADE
1. Issues related to e-finance
75. The Chairman recalled that at the last mee ting, the Committee had an interesting discussion
on the basis of additional information provided by  Switzerland in document S/FIN/W/26/Add.1.  At
the end of that discussion, the Committee had agreed to revert to the issue of e-finance at this meeting.
76. There were no interventions.
77. In concluding, the Chairman encouraged Members to consider ways to continue with the
analysis of this issue.  He noted the utility of submissions such as the ones by Hong Kong, China and
Switzerland, and encouraged other Members to do the same. Experiences from developing country-
Members would also be very interesting in that regard.
78. The Committee decided to revert to the issue of e-finance at the next meeting.S/FIN/M/43
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2. Communication from Malaysia "Challenges in the Financial Services Sector"
(S/FIN/W/28)
79. The Chairman recalled that at the previous meeting, it was agreed to keep this submission on
the agenda to allow for further discussions and to give a possibility to Malaysia to reply to the
questions raised and comments made by other delegations.
80. The representative of Malaysia said that her delegation would try to reply to the questions
raised, including those sent by the European Communities the week before the meeting, at the next
meeting.
81. The Chairman suggested that this agenda item be carried over to the next meeting.  The
Committee so decided.
F. DATE OF THE NEXT MEETING
82. The Chairman suggested that the Committee hold  its next meeting during the next cluster of
services meetings, in February 2004.  The exact date would be announced in due course.  The
Committee so decided.
G. OTHER BUSINESS
83. The Chairman informed Members that the OECD, who is an observer to the Committee, had
brought to the Secretariat's attention a recent document entitled "Managing request-offer negotiations
under the GATS: the case of insurance services." The document was part of an OECD-UNCTAD
project to produce sector-specific checklists that might help Members in their request-offer
negotiations.  Four sectors had been identified: insurance, legal, energy, and construction.  The OECD
had undertaken to work on the first two, and UNCTAD on the last two.  The Chairman said that this
document could be very useful for delegations.  He therefore suggested that the WTO Secretariatmakes the document available to all delegations, and that the OECD Secretariat be invited to present
this document and discuss the document with delegations at the next meeting.
84. The representative of Brazil said that a discussion had been held in July about invitations to
other organizations to present documents at the Council for Trade in Services.  A quite satisfactory
decision was reached in the case of services. He welcomed the Chairman's suggestion to circulate thedocument and to invite the OECD to present it.  However, he noted that different approaches were
followed in other WTO bodies as far as this kind of invitations was concerned, and his delegation
might have to reflect on that aspect as well and the likely systemic impact on the Council for Trade in
Services.
85. The Committee took note of the statements made and agreed
 to the suggestion made by the
Chairman.
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