. /.WORLD TRADE
ORGANIZATIONS/FIN/W/30
29 September 2003
(03-5104)
Committee on Trade in Financial Services Original:  English
COMMUNICATION FROM JAPAN
Transitional Review Mechanism in connection with Paragraph 18 of
the Protocol on the Accession of the People’s Republic of China
Questions and Comments of Japan on the Implementation by China
of its Commitments on Trade in Financial Services
The attached communication has been received from the delegation of Japan with the request
that it be distributed to Members of the Committee on Trade in Financial Services.
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1. Japan welcomes that, in the second year after accession, implementation by China of its
commitments on trade in financial services has progressed and is entering into a cruising phase.  Itappreciates efforts by China for developing and improving necessary regulatory framework and
smoothly implementing phase-in commitments.  In a transitional period of evolving regulations, the
importance of regulatory transparency, predictability, stability and consistency is paramount; the
value of market access commitments and the efforts to implement them could be easily clouded out
by a shortness of such elements either in regulations themselves or in their application.  The
transitional review mechanism could be useful for making those transitional efforts more efficient and
productive, and it is a pleasure for Japan to contribute to this process.
2. In this context, China is further invited to take  necessary steps to ensure regular and effective
application of public comments procedures, well-in-advance publication of laws and regulations,
avoidance of abrupt regulatory change, clear-demarcation of departmental responsibilities,
improvement in inter-departmental and central-provincial coordination and consistency, etc.
3. In accordance with Paragraph 18 of the Protocol on the Accession of the People's Republic of
China, which states that "China shall provide releva nt information to each subsidiary body in advance
of the review" and in the spirit of cooperation to render the TRM process most efficient and effective,
Japan requests China to provide in advance of the Regular Meeting of the Committee on Trade in
Financial Services responses and relevant information to the following questions and comments.
I. INSURANCE AND INSURANCE RELATED SERVICES
4. China's Schedule of Specific Commitments provides that foreign life and non-life insurers,
and insurance brokers are permitted to provide services in Shanghai, Guangzhou, Dalian, Shenzhen
and Foshan, and that all the geographic restrictions are to be eliminated in three years since accession.
Please confirm that China permits licensed foreign-invested insurers in any of these cities to provide
services nationally solely based on existing licenses, without applying for a new license.  If not, pleaseexplain how such a restriction is consistent with the Schedule of Specific Commitments.
5. Article 37 of a draft of Rules of the Regulations on Administration of Foreign-Funded
Insurance Companies , for which public comments have been invited since 31 July, provides that aS/FIN/W/30
Page 2
minimum capital requirement of Renminbi (RMB) 200 million for the initial branch, and additional
RMB 20 million in operational capital for each subsequent branch, up to a total of RMB 500 million.
Article 13 of the Insurance Company Administrative Measures , on the other hand, requires insurers
with national license, beyond the initial four branches, additional RMB 50 million in registered capital
per branch, up until RMB 1.5 billion.  Moreover, a draft of a revised Insurance Company
Administrative Measures  was recently disclosed for public comments, and its Articles 6 (1) and 12
stipulated the same capital requirements as in Rules of the Regulations on Administration of Foreign-
Funded Insurance Companies  and no longer differentiated regional and national licenses.  Please
explain the relationship between these different capital requirements and license requirements, and the
relationship between regional and national licenses.  More specifically, please confirm that foreign-
invested insurers are required to put in place RMB 200 million, not RMB 500 million, for the initial
national operation and face a capital requirement of no more than RMB 500 million, not RMB 1.5billion.
6. The Provisional Procedures on the Management of Foreign Exchange in the Insurance
Industry regulate insurance contracts denominated by foreign currency.  Japan wishes to note that
some joint-venture insurers were recently permitted to issue such contracts.  Please explain why all
joint-venture insurers are not allowed to do so.  Further, please elaborate on the prudentialjustification for the regulation to the extent that foreign-denominated insurance contracts are
prohibited, and on specific criteria upon which approval is based.
7. Article 20 (1) of the Administrative Regulation on Foreign-Invested Insurance Company
prohibits foreign-invested insurers to engage in any of the outward or inward cross-boarder
reinsurance with their associated enterprises unless they are otherwise approved by CIRC, whereasArticle 89 of the Insurance Company Administrative Rules  simply requires an approval from CIRC to
engage in this line of service.  Japan notes that these regulations have an adverse effect on foreign-
invested insurers and constitute discrimination that modifies competitive conditions in the sense of
Article XVII:3 of the GATS.  Please explain, in this context, the consistency of these regulations with
China's commitments in Paragraph 308 of China’s Working Party Report, namely that "China'slicensing procedures and conditions would not act as barriers to market access and would not be more
trade restrictive than necessary."  Please elaborate on the prudential justification for such prohibition
and specific criteria upon which CIRC bases its consideration.
II. BANKING
8. Article 6 of the People’s Bank of Chi na (PBOC) Draft Notice  No. 28 prohibits both foreign
and domestic-invested banks to raise more than 40 percent of their total liabilities from the RMB
inter-bank market.  Japan has voiced its concern that the article would unduly inhibit the activities offoreign-invested banks, who are not in a position to establish large RMB deposit bases, compared to
domestic banks.  With this in mind, please explain the consistency of these regulations with the
above-mentioned China's commitments in Paragraph 308, and please provide any updates concerning
the review of the article.
9. China’s Schedule of Specific Commitments provides that foreign financial institutions will be
permitted to provide local currency business services to Chinese enterprises, within two years after
accession.  Japan wishes to indicate that currently, practices such as netting settlement of spot
operation and collateral loans on foreign securities are not permitted to the foreign financial
institutions.  Please elaborate on specific procedures and criteria employed in determining the extent
of local currency services that a foreign financial institution is allowed to engage.  Moreover, pleaseconfirm that foreign financial institutions are allowed to fully engage in local currency business
within two years from accession in accordance with GATS Article XVII.
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