RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/W/37 
5 November 2004 
 
 (04-4703) 
Committee on Trade in Financial Services Original:   English 
  
 
 
COMMUNICATION FROM CANADA  
 
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 4 Novemb er 2004, from the delegation of Canada is 
being circulated to the Members of the Committee on Trade in Financial Services. 
 
 
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1. Canada recognizes the earnest efforts on the part of China to implement its WTO 
commitments for financial services.  Related to liberalization commitments under the GATS, China’s 
operational requirements (including registered capita l requirements) for banking have for the most 
part been made less onerous, and more in line with international best practices.  As well, Canada is 
encouraged that the requirement that foreign banks  must wait one year between receiving approval for 
a given branch and submission to the China Banking Regulatory Commission (CBRC) of an 
application to open another branch has been remove d.  Canada expects that  branch licenses will be 
available on a national treatment basis from now on. 
2. Continued liberalization of the securities and fund management sectors, such as increases in 
the permitted investments of financial institutions an d in the number of Qualified Foreign Institutional 
Investors (QFIIs), signals that China is committed to  the development of its domestic capital markets.  
Finally, improved market access for foreign insura nce firms has produced concrete benefits to 
Chinese consumers and workers, as well as financial in stitutions.  Canada also looks forward to the 
extension of provincial licenses to foreign insurance firms later this year. 
3. Following on Canada’s submissions for the TRM process in 2002 (S/FIN/W/20) and 2003 
(S/FIN/W/33), the main focus of this inquiry is to clarify certain aspects of the Chinese financial 
sector regulatory regime, including how certain specifi c measures are regarded to be consistent with 
China’s commitments in its Schedule of Specific Commitments and/or the Working Party Report on 
China’s Accession.  Two comments also address the promotion of a transparent financial sector 
regulatory regime in China.   
4. In accordance with paragraph 18 of China’s accessi on protocol, and in order to contribute to 
an informed discussion, Canada requests that Ch ina provide responses and relevant information 
concerning these questions and comments before or  during the next meeting of the Committee on 
Trade in Financial Services. S/FIN/W/37 
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Questions and Comments 
A. I
NSURANCE  
1. Canada would be interested to receive any sp ecific information regarding China’s plans to 
implement its licensing regime for province-wide access by foreign life insurance firms.  We understand that in China, some large metropolitan ar eas are classified as provincial jurisdictions.  
Regarding provinces that contain more than one city , will firms need to be established in the capital 
city before being able to expand into other cities in that province?  As well, does a provincial licence 
allow the establishment of multiple branches or sal es offices without prior approval by CIRC?   
2. Can China please provide an explanation of the licensing procedures for Chinese life 
insurance firms seeking province-wide access?  If it differs from the upcoming regime for foreign 
companies, can China please indicate how it will ensu re that national treatment is provided?   
B. B
ANKING  
3. Canada understands that the Procedures on the Administration of Foreign Debts of Foreign 
Capital Banks in the Territory  issued on 27 May 2004 by the National Development and Reform 
Commission (NDRC), the People’s Bank of Chin a (PBOC) and the CBRC – as well as further 
implementing rules released on June 21st by the State Administration of Foreign Exchange (SAFE) – 
outline limitations on the amount of foreign exchange  funding foreign banks may acquire from abroad 
through the imposition of a quota system.  These regul ations artificially cap the extent to which 
foreign banks’ foreign currency lending can be financed offshor e.  Can China please explain how 
these regulations and implementing rules respec t its GATS market access and national treatment 
commitments?  We wonder whether this limitation provides a level playing field for foreign banks, 
especially for new branches that have no prior bus iness to help assess their quota, but who would be 
severely restricted in their first year growth if th e quota were too low.  Alternatively, how will China 
accommodate established foreign banks that are ex panding at a rapid pace and who would be very 
restricted by a quota that is primarily based on the level of its past business (as is the case for 2004 
quotas)?  Can China please indicate how the quot as will be established for 2005 and beyond, and 
explain how it will ensure transpar ency when setting quotas for each bank? 
4. The above-mentioned regulations and implementing rules, when taken with Article 30 of the  
Administrative Regulations on Foreign-Invested Financial Institutions , further limit the foreign 
currency lending activities of foreign banks.  This is because Article 30 requires that the value of a 
foreign bank's foreign currency deposits received within China shall not exceed 70 percent of the 
value of its foreign currency assets within China.  Essentially, a foreign bank can only fund up to 70 
percent of its foreign currency loans with funds depos ited in China, and at least 30 percent of its loan 
funding must be from abroad.  This requirement lim its the ability of foreign banks to lend foreign 
currency without bringing in foreign currency from abroad.  Therefore, this policy actively supports 
foreign borrowing as a means of financing lending,  while the above-mentioned 2004 regulations and 
implementing rules restrict foreign borrowing (and the resulting foreign currency lending activities of 
the bank).  Can China please indicate how both these regulations respect the equal competitive 
opportunities it is bound to provide in its GATS nati onal treatment commitment s when they act to 
doubly restrict the funding sources for foreign banks? 
C. GENERAL  
5. To ensure that foreign firms can form clear e xpectations regarding their rights and obligations 
when operating in China, Canada would like to encourage the China Insurance Regulatory 
Commission (CIRC), CBRC, China Securities Regulatory Commission (CSRC), and SAFE to 
communicate with firms in writing as much as possible,  especially regarding interpretation of relevant  S/FIN/W/37 
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rules and regulations, and when responding in detail regarding such things as regulatory approvals or 
quotas on the use of foreign capital.  
6. In a transitional period such as this, where a num ber of regulations are being promulgated in 
China, the importance of regulatory transparency is paramount.  In this context, Canada encourages 
China to take necessary steps to  ensure regular and effective application of public comment 
procedures on draft laws and regulations, as well as publication of those measures well in advance of 
their effective date.  Does China pl an to introduce any procedures or laws to promote a standardized 
public consultation process among the CBRC, CIRC, CSRC, SAFE and NDRC? 
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