RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/W/40 
8 November 2004 
 (04-4723) 
Committee on Trade in Financial Services Original:   English 
  
 
COMMUNICATION FROM THE UNITED STATES 
 
Transitional Review Mechanism in connection with Paragraph 18 of 
 
the Protocol on the Accession of the People's Republic of China  
 
 
 The following communication, dated 5 Novemb er 2004, from the delegation of the United 
States is being circulated to the Members of the Committee on Trade in Financial Services.   
 
_______________ 
 
 
Questions from the United States to China  
concerning Financial Services  
 
 
A. INSURANCE  
1. Prior to China’s WTO accession, China’s regul atory authorities allowed a number of foreign 
non-life insurers to establish operations in China.  China’s regulatory authorities requested that all of 
these insurers incorporate as operational branches rath er than as subsidiaries.  Since issuing the 
Regulations on the Administration of Insurance Companies and the Implementing Rules for the 
Regulation on the Administration of Foreign-I nvested Insurance Companies on May 13, 2004, 
China’s Insurance Regulatory Commission (CIRC) has encouraged foreign non-life insurers to 
convert existing branch operations  to subsidiaries.  The recently issued CIRC regulations and 
implementing rules, however, do not appear to a ddress the treatment of branches already established 
in China.  
(a) Please confirm that existing branches a nd other existing non-life insurer operations 
may, but are not required to, continue to  operate under the conditions existing, and 
pursuant to the approvals granted, prior to the recently issued regulations and 
implementing rules, including with regard to operations, financial structure, capital 
and mode of establishment. 
 
(b) Please clarify whether China will allow non-lif e insurers already established in China 
(whether as a branch or otherwise) to ope n branches and sub-branches even if they do 
not first establish as a subsidiary.  The United States notes that, in paragraph 313 of the Working Party Report, China agreed that it would not apply the qualifications for 
foreign insurers applying for a license to enter China’s market to foreign insurers 
already established in China merely seeki ng authorization to establish branches or 
sub-branches.  In addition, in the Serv ices Schedule accompanying its Protocol of 
Accession, China specifically  committed to allow non-lif e firms to establish as a 
branch and allow internal branching in accordance with the lifting of China’ s 
geographic restrictions.  
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2. The recently issued regulations and implementing rules do not specify the number of branches foreign insurers may apply for at one time.  They also do not specify whether branch approvals will be 
granted consecutively (meaning one at a time) or c oncurrently (meaning more than one at a time). 
 
(a) Please confirm that foreign insurers may be granted simultaneous approvals for 
multiple branches as part of a single license application.   
 
(b) At present, it appears that, in practice, es tablished Chinese insurers are able to receive 
concurrent approvals to open  multiple branches.  The most recent example is Xin Hua 
Life (New China Life).  In stark cont rast, foreign insurers have only received 
consecutive approvals to open single branches.  Please justify this differential 
treatment in light of China’s WTO national treatment commitments. 
 3. The recently issued regulations and implementing rules do not identify the types of geographic licenses available to foreign insurers. 
 
(a) Please confirm the ability, or make chang es allowing, foreign insurers to obtain 
licenses for province-wide operations. 
 
(b) Does China apply the same rule to dom estic insurers?  If not, please justify this 
differential treatment in light of China’s WTO national treatment commitments. 
 
4. In the recently issued regulations and impl ementing rules, China est ablished certain capital 
requirements, with RMB 200 million being set for ini tial establishment, whether as a subsidiary or a 
branch, and RMB 20 million for each additional branch.  However, these regulations and implementing rules do not appear to directly a ddress the internationally accepted branch/sub-branch 
operating structure.  Unlike subsidiaries, branches  and sub-branches are legally part of the parent 
foreign insurer itself, meaning that all liabilities of  the branches and sub-branches are backed by the 
full asset base of the parent corporation.   
(a) Please confirm that the RMB 200 million capital requirement for initial 
establishment, whether as a subsidiary or a branch,  includes the right to establish 
sub-branches without limitation on number s and without having to satisfy any 
additional capital requirements. 
 
(b) Please explain the rationale for requiring additional capital of RMB 20 million for 
each additional branch, particularly in light of the fact that any additional branches 
would still be backed by the full asset base of the parent foreign insurer. 
 5. Pursuant to CIRC’s Provisional Measures on the Administration of the Overseas Utilization 
of Insurance Foreign Exchange Funds, issued on Au gust 9, 2004, the qualifying threshold (e.g. total 
assets of RMB 5 billion) for insurers to be able to  invest their foreign exchange funds in overseas 
funds or equities is extremely high.  In practi ce, only the very largest insurers, i.e. domestic 
companies, will have the level of assets necessary to qualify for this access to overseas funds or 
equities.   Foreign-invested insurers invariab ly will not qualify unless CIRC recognizes the assets of 
the parent foreign insurer when determining the asset level of a foreign-invested insurer.   
 
(a) Please explain the rationale for this limitation. 
 
(b) Given the disproportionate impact of th is limitation on foreign-invested insurers, 
please justify this differential treatment in  light of China’s WTO national treatment 
commitments.  
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6. Pursuant to Article 8 of CIRC’s Interim Regulations for Insura nce Assets Management 
Companies, which became effective on June 1, 2004,  only insurers that have held licenses for more 
than 8 years are permitted to apply to establish an insurance asset management  company.  It appears 
that this provision applies only to insurers that ha ve been operating in China for those 8 years, which 
would exclude all foreign insurers entering Ch ina’s market since China’s WTO accession on 
December 11, 2001.   
 
(a) Please explain the rationale for this limitation from a prudential perspective. 
 
(b) Given the disproportionate impact of this  limitation on foreign insurers, please justify 
this differential treatment in light of China’s WTO national treatment commitments.  
 7. While China has made some progress in libera lizing the types of investment that insurance 
companies may hold, under the Administrative Regula tions on Insurance Companies, issued by CIRC 
on May 13, 2004, insurance companies in China are mos tly restricted to investments in the form of 
bank deposits, Chinese treasury bonds, government agency bonds issued by the central bank or 
quasi-sovereign policy banks of the Chinese government, qualified domestic securities investment funds and other vehicles approved by the State Counc il, such as bonds of specified large state-owned 
enterprises.  Is CIRC reviewing, or planning on re viewing, these regulations to determine whether to 
allow a portion of assets to be invested abroad?  Will this review be conducted in a transparent 
manner, with input sought from foreign insurance companies?   
 
B. F
INANCIAL HOLDING COMPANIES  
8. CIRC has yet to issue regulations on financial holding companies, a structure under which 
one corporate entity may provide a combination of  insurance, banking and securities services through 
separate operating companies.   U.S. industry reports, however, that CIRC has already granted 
approvals to its Chinese competitors allowing them to establish financial holding companies.  Please 
confirm the right of foreign companies to estab lish financial holding companies and how such 
companies will be regulated. 
 
C. BANKING  
9. Pursuant to the Regulations on the Administra tion of Foreign-Invested Financial Institutions 
and the Detailed Implementing Rules for the Regulati ons on the Administration of Foreign-Invested 
Financial Institutions, issued by the People’s Ba nk of China (effective February 1, 2002), China 
imposes minimum capital requirements for foreign ba nks, on a branch-by-branch basis, that remain 
extremely high by international standards.  At the transitional review held last year, the United States 
and other WTO Members asked China whether it was reviewing these high capital requirements to 
determine whether they are necessary and not overl y burdensome for foreign banks.  China responded 
that, 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 requirements for foreign 
banks accordingly.   What is the current stat us of CBRC’s review of these capital requirements? 
 D. S
ECURITIES  
10. Under rules issued by the China Securiti es Regulatory Commission (CSRC) addressing joint 
venture asset management companies, foreign firms must have at least RMB 300 million of capital to qualify as a joint venture partner.  This amount is significantly higher than in any other country, as 
other countries recognize that asset management firms do not need capital reserves to protect 
investors.  This high capital requirement impedes market access for foreign firms.   
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(a) Please explain China’s rationale for this high capital requirement. 
 
(b) Is China considering modifications to th ese rules?  If so, when does CSRC plan on 
circulating a draft of the revised rules for public comment? 
 
E. P
ENSIONS  
11. In the Services Schedule accompanying its Protocol of Accession, China committed to open 
its pension market to international pa rticipation by December 11, 2004.   
 
(a) Please explain China’s plans for implementing this commitment. 
 
(b) When will China issue draft regulations  implementing this commitment for public 
comment? 
 
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