RESTRICTEDWORLD TRADE
ORGANIZATIONS/FIN/M/37
24 October 2002
(02-5856)
Committee on Trade in Financial Services
REPORT OF THE MEETING HELD ON 21 OCTOBER 2002
Note by the Secretariat1
1. The Committee on Trade in Financial Services held a meeting on 21 October 2002.  The
agenda is contained in airgram WTO/AIR/1928.
A. ACCEPTANCE OF THE FIFTH PROTOCOL TO THE GENERAL AGREEMENT ON TRADE IN
SERVICES EMBODYING THE RESULTS OF THE FINANCIAL SERVICES NEGOTIATIONS .
2. The Chairman recalled that seven WTO Members have not yet accepted the Fifth Protocol,
namely Bolivia, Brazil, Dominican Republic, Jamaica, the Philippines, Poland, and Uruguay.
However, he stated that Bolivia had recently announced its intention to accept the Protocol, and had
requested the re-opening of the Protocol for that purpose. This was communicated to Members in
document S/C/W/214. In addition, a draft decision for the Council's consideration was circulated in
document S/C/W/215.  Since only the Council for Trade in Services was authorized to re-open theProtocol, the matter would be taken up at the next regular meeting of the Council, to be held on
Friday, 25 October.
3. The representative of Bolivia confirmed that according to Article 59, paragraph 12 of the
Political Constitution of the State, Bolivia had enacted the Law No. 2401 of 31 July 2002, approving
the Fifth Protocol to the GATS. She also confirmed that Bolivia had requested that the re-opening of
the Fifth Protocol for its acceptance be included as an item on the agenda for the next meeting of the
Council for Trade in Services.
4. The representative of Poland informed the Committee that the ratification procedure was in its
final phase.  The Council of Ministers had accepted the motion of ratification of the Fifth Protocol
and, within the next few days, it would be presented to the President of the Republic of Poland for
signature.
5. The representative of Uruguay said that the Fifth Protocol had been adopted by the Chamber
of Representatives, and was now being considered by the Senate's Commission on International
Affairs. He added that the legislative procedure had entered into its last phase.
6. The representative of the Dominican Republic said that the Fifth Protocol had been approved
by the Senate of the Dominican Republic on 1 October 2002.  It was expected to be considered by the
Chamber of Representatives towards the end of the current month. She added that the DominicanRepublic was very interested in concluding the ratification procedure as soon as possible.
                                                     
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/37
Page 2
7. The representative of Canada thanked those Members for the information provided.
8. The representatives of Switzerland and the European Communities  thanked those four
delegations for the information provided and encouraged the other Members concerned to provide
additional information on the status of their respective procedures.
9. The Chairman thanked Bolivia on behalf of all Members for its decision to finally accept the
Fifth Protocol, an initiative that must be welcomed as an additional proof of Bolivia's commitment to
the multilateral trading system. He also encouraged the other six Members concerned to accelerate
their internal procedures for the acceptance of the Protocol.
10. The Committee took note of the statements made and decided  to revert to this item at the next
meeting.
B. TRANSITIONAL REVIEW UNDER SECTION 18 OF THE PROTOCOL ON THE ACCESSION OF THE
PEOPLE 'S REPUBLIC OF CHINA .
11. 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. He added that, on the basis of his consultations on
this matter, it had been decided that the Committee would undertake that review at this meeting. This
was announced by fax to all Members on 12 September 2002.
12. Since that date, written communications had been received from the following Members: the
European Communities and their Member States (S/FIN/W/18); the United States (S/FIN/W/19);
Canada (S/FIN/W/20); Japan (S/FIN/W/21 and Addendum 1); and Chinese Taipei (S/FIN/W/22).
13. The representative of China said that an important delegation, made up of senior officials
from relevant administrative authorities, including the People’s Bank of China and the China
Insurance Regulatory Committee, was sent to this  meeting in order to address the comments and
concerns of other Members.  He said he would divide this statement into two parts:  i)  a brief account
of China's preparation for the review;  and ii)  responses to the comments and questions of common
concern raised by some Members.
14. Regarding the preparations for the review, in light of the provisions in the accession protocol
of China, the information regarding financial servi ces had been provided to the Council for Trade in
Services, according to the requirement of Annex 1.A to that protocol and the notification obligations
of GATS Article III.
15. The relevant information for this Committee incl uded the following: the laws, regulations and
administrative measures directly related to the financial sectors and sub-sectors listed in China's
Schedule of Specific Commitments;  the government bodies in China responsible for the
administration of financial services; and the market access status in the financial sector since China’saccession to the WTO.
16. China had been making every possible effort to carry out its commitments with regard to
financial services since its accession to the WTO. In terms of the legislation governing this sector, to
fulfill its commitments, China had revised a series of regulations and administrative measures
including: Regulations on Administration of Foreign-Fund ed Financial Institutions, Implementation
Rules of the Regulations on Administration of Foreign-Funded Financial Institutions, Measures for
Administration of Representative Offices of Fore ign-Capital Financial Institutions in China ;  etc.  A
number of new regulations had also been formulated including: Regulations on Administration of
Foreign-Funded Insurance Companies, Rules for Establishing Foreign-Invested SecuritiesS/FIN/M/37
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Companies, and Rules for Establishing Foreign-Invested Fund Management Companies . The
People’s Bank of China also issued Proclamation on the Related Issues of Foreign-Funded Financial
Institutions’ Market Access at the time when China acceded to the WTO. The government of China
had managed to compromise on a dilemma during the process of legislative streamlining. On the one
hand, China was under the obligation to promulgate these regulations and administrative measures atthe earliest possible stage so as to consolidate th e legal basis for foreign services providers to take
advantage of legitimate market access opportunities  promised by China's protocol of accession.  On
the other hand, to observe the principle of transparency, every possible means had been utilised to
provide WTO Members, enterprises and individuals wi th the opportunity to comment.  Thus far, the
only area without governing regulations was the auto financing by non-banking institutions, as the
result of the historical absence of institutions spec ialized in auto financing, and the lack of mature
administrative mechanism and experience. Starting basically from scratch, the regulatory system forthis particular area needed more time to take shape. Currently, the draft of the relevant regulation had
been published to solicit public comments.
17. The achievement made by China in promoting market access in financial services was
concrete and evident in all sub-sectors.
18. In the banking sector, the business of foreign funded banks in China had been further
expanded since China’s WTO accession. The number of foreign-funded banks with the right to
conduct RMB business had increased from 31 at the end of the year 2001 to 45 as of August 2002,
with total assets in RMB of about 44.6 billion.  Foreign funded banks' profit from RMB business
reached 184 million in the period from January to July, 2002, with a net growth of 13.58% in July.
Profits on the foreign exchange business hit US$ 119 million in the same period, with a monthly netgrowth of 21.43% in July 2002.
19. The insurance business had also witnessed an increase in the number of foreign funded
insurance companies since China’s WTO accession. Three companies, namely, Swiss Reinsurance,
Munich Reinsurance, and Cigna Corp. had been granted the approval for the establishment of Sino-
foreign joint-venture or branch. AIA Suzhou and Beijing branches, Everbright Sun-life Life Insurancehad completed their preparatory work and had started operations during this period.
20. In the securities sector, Guo An Fund Manageme nt Corp., the first Sino-foreign joint-venture
fund management company, was approved on 16 October 2002, marking a major step forward by
China to fulfill its market opening commitments in this important and sensitive sector.
21. He then turned to the second part of his statement, and provided responses to the areas of
concern identified in the questions submitted by some Members.
1. Insurance Business
a) Regarding the  transparency of governing regulations , he said that as a WTO member, China
was committed to abide by the WTO rules. China would observe the notification procedures and take
account of various opinions and comments in the process of formulating laws and regulations.
Since China's entry into the WTO, the approval of foreign insurance companies had been conducted
in compliance with China’s commitments. It was true that some articles in the “ Regulations for the
Administration of Foreign-Funded Insurance Companies ” contained wording such as “pursuant to
relevant regulations”. By “relevant regulations”, China meant the regulations already adopted by
China, and commitments made by China on insurance, which had all been made public and easily
accessible for foreign insurance companies.S/FIN/M/37
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Concerning licensing procedures, China had been making great efforts to improve the existing
insurance regulations and administrative measures. As part of those efforts, the “ Regulations on the
Administration of Foreign-Funded Insurance Companies ” had been promulgated and implemented
with a view to defining and clarifying the procedures of approving foreign insurance companies. In
practice, the so-called “multi-tiered application” only appeared when the application material wasconsidered incomplete or failing to meet the requirements laid out in the “ Regulations on the
Administration of Foreign-Funded Insurance Companies ”. The requirement for the applicants to
redress deficiencies by submitting more documents showed that China was serious in aligning
insurance regulations with the WTO rules and its commitments.
b) With regard to the issue of internal branching , according to the “ Administrative Measures
on Insurance Company ”, foreign insurers were permitted to establish branches or sub-branches. Since
China’s entry into the WTO, China Insurance Regulatory Committee (CIRC) had strictly observed the“national treatment” principle with regard to requ irements for internal branching. In compliance with
China's commitments, upon accession, foreign non-life insurers could establish a branch or joint
venture with an equity level up to 51 percent; and within two years after accession, foreign non-life
insurers would be allowed to establish wholly-own ed subsidiaries. According to this commitment, a
foreign insurance branch company set up in China, in compliance with concerned laws, couldestablish branches or sub-branches in its operation area after being transformed into a wholly-owned
subsidiary.
c) Regarding the Issue of Capital Requirements, these were made before China’s entry into the
WTO in full consideration of the specific situation of China’s insurance industry. Before the
establishment of the requirements, CIRC extensively solicited comments and opinions from experts athome and abroad.  These requirements for foreign-invested insurance companies concerning capital
and licensing applied to domestic insurers as well, something clearly defined in the “ Administrative
Measures on Insurance Company ”.
d) Regarding the Issue of International Cooperation and Communication, after China’s entry
into the WTO, China committed itself to increasing exchanges and cooperation with other WTOMembers and foreign economic and financial institutions in a bid to improve its insurance regulatory
system and legal framework. CIRC would also like to intensify contacts with foreign insurers on
related issues.
2. Banking Services
a) Regarding the minimum registered capital requirement or operational capital requirement
for foreign-invested banks , he said that the national treatment principle was observed for the
minimum capital requirement for both foreign and domestic financial institutions.
Secondly, foreign financial institutions could choose at their own discretion different types of
establishment in China, which had different operational capital requirements.  So far, all foreign banks
had increased their operational capital to the level required for their business scope. Among them, 59
had been allowed to conduct a full spectrum of foreign exchange business, and 45 to conduct RMB
business.  The requirement on operational capital could meet the demand of foreign financialinstitutions in the 5-year transitional period.
Thirdly, many other WTO Members had also minimum operational capital requirement on branches
of foreign banks, although the amount varied from Member to Member.  The current operational
capital requirement in China had to accommodate the current Chinese financial development level,
including the banking industry and its supervisory capacity. Foreign bank branches in China alreadyenjoyed a much broader business scope, including products and clients, than what could be allowed in
many other Members.S/FIN/M/37
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Furthermore, the trend of governing a branch as a quasi-legal entity was catching on recently in the
world.  China believed that it was difficult for the regulatory authority of the host country to monitor
and control the global operation risks of parent banks, even though they were committed to
undertaking the liability of their branches.  Therefore, for the purpose of protecting the interests of
domestic depositors and the safety and soundness of the financial system, China had to treat branchesof foreign banks as legal entities so as to separate risks of branches from those of their parent banks.
b) Regarding the Issue of Auto Financing, China  understood that foreign banks were hoping
for an early promulgation of auto financing regu lations.  The Chinese government would do so as
soon as possible.  However, some explanations were necessary in that regard.
Firstly, since the concept of auto financing bus iness came late to China, there was no entity
specialized in this business and no governing regulation.  A unified set of rules covering licensing
procedures, business scope, etc., was needed for the non-banking financial institutions that were onlyengaged in extending loans for car purchase.  The PBOC needed time to take a complete and thorough
study when drafting such rules, drawing on experiences from other Members and taking into account
China’s specific situation.
Secondly, drafting the proposed rules had to take account of the corresponding amendment of some
related administrative rules and keep consistency. So far, both commercial banks and financialcompanies affiliated to car companies could deal with auto financing. The operation of these entities
shall be uniformly administered by the proposed rules.
Thirdly, the principle of transparency was given priority in the drafting process. Consultations had
been held between the concerned administrative agencies and interested parties, including the
embassies of some Members in China, and some corporations like General Motor, Ford, Volkswagenand Toyota. They provided many valuable comments and suggestions. On this basis, the PBOC made
further amendments and posted Rules on the Administration of Auto Financing Institutions  on the
web-site of PBOC for further public comments with a 31 October 2002 deadline.
c) Regarding the 40% limit on inter-bank borrowing in RMB within 4 months (from the
drafted Rules on Inter-Bank Borrowing in RMB),  the Rules were still in the drafting process and
under consultation with all parties concerned.
This requirement was in conformity with WTO na tional treatment principle.  Pursuant to the
accession commitments by the Chinese government, from December 2003, foreign banks would be
allowed to conduct RMB business with Chinese enterprises and the current over-dependence of
foreign banks on inter-bank borrowings would be gradually improved.  The forthcoming Rules would
not pose any significant impact on the development of foreign banks. In addition, the specific
situation of foreign banks would be fully taken into account during the drafting process, such as alonger grace period to cushion the pressure on foreign banks.
d) Regarding Branching Restrict ions and Approval Procedures , he said that this was a
prudential requirement based on the following considerations.  Firstly, establishing an operational
entity was very important to any bank and entailed many major arrangements, like the appointment of
appropriate senior staff, the laying out of internal control systems as well as the development of abusiness plan, etc.  If the interval between setting up branches was too short to manage all these
arrangements, the applicant would face unhealthy pressure on the soundness of operations and risk
management.
Secondly, following the approval, the foreign bank  should then focus on the establishment of the
branch, implementing the business plan proposed in its application as soon as possible. So it was notin line with the prudential principle to apply for another branch when the establishment of the just-S/FIN/M/37
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approved branch was still underway.  Thirdly, there were other options for foreign banks to expand
their operation network, such as sub-branching in one city and offering e-banking facilities.  After a
branch of foreign bank had applied for a sub-branch in one city, it could apply for another sub-branch
as long as the last application was either approved or rejected according to the Rules on Sub-Branch
Establishment in One City by Commercial Banks .
e) Concerning the qualification of the lead partner in a new Sino-foreign fund management
joint venture company , on June 1st, 2002, the China Security Regulatory Committee (CSRC)
promulgated Rules on the Establishment of Fund Management Company with Foreign Shareholding,
which was enacted on July 1, 2002. This document was one of the major regulations regarding the
establishment of a Sino-foreign fund management joint venture company in China, which did not
prohibit qualified overseas financial institutions (including overseas fund management companies) as
the lead partner of Sino-foreign fund management joint venture companies. For prudentialconsiderations, currently, an overseas financial institution, in order to be the lead partner of a fund
management joint venture company, must have qualification and experience in asset management.
f) Concerning the comment period for the CSRC’s rules and regulations,  prior to the
promulgation of Rules on the Establishment of Securities Company with Foreign Shareholding and
Rule on the Establishment of Fund Management Company with Foreign Shareholding, the CSRCpublished both draft Rules on the CSRC’s official web-site ( www.csrc.gov.cn ) for public comments
in December 2001. After the collection of public  opinions, the CSRC went further to consult
extensively with foreign-invested institutions or their local branches and representative offices
through a number of discussions/seminars.
g) Concerning the approval process for establishing a Sino-foreign fund management joint
venture company,  Articles 11-17 of the Rules on the Establishment of the Fund Management
Company with Foreign Shareholding specified the approval process for establishing a Sino-foreign
fund management joint venture company. In accordance with the WTO national treatment principle,
the same approval process was applied to bo th domestic fund management companies and Sino-
foreign fund joint venture companies; that is, all fund management companies in China, whetherdomestic-funded or foreign-funded, were subject to the same approval procedures and rules.
h) With respect to the Issue of MFN Regarding The Licensing of A Share Trading, Business,
the license of A share trading business for existing joint venture securities companies was approved
by the CSRC before China’s accession to the WTO. Legally speaking, China was not bound to the
WTO obligations, including the MFN principle, until China became a formal Member of the WTO.
Thus, the MFN principle did not apply to the cases before China’s accession.
He added that China had been fulfilling its WTO accession commitments in a positive and serious
spirit. The efforts that had been made, as well as the difficulties that had been overcome, should be
recognized by all Members. From what China had learnt, foreign-funded financial institutions had
been satisfied with the increased market access opportunities, the improved transparency policy and
the better operation environment since China’s WTO accession. They maintained strong confidence in
the continuous and steady growth of the Chines e economy, and looked forward optimistically to
further expanding their businesses in China.  He expressed the hope that the information provided to
the Council for Trade in Services prior to the meeting and the explanation just given would help
Members understand China's efforts and achievements to implement its commitments on financial
services.
Finally, for transparency purposes and in order to have a better understanding of the responses, the
representative of China agreed to have its statement circulated after the meeting.S/FIN/M/37
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22. The representative of the European Communities said that the responses given by China at the
meeting contained interesting elements. However, th ey were incomplete. He made some preliminary
comments, since he had not been able to analyse and review the answers provided by China.
Regarding the issue of internal branching in insura nce, he took note of the reply from China that
national treatment was respected. However, he highlighted that it was not only a question of nationaltreatment, but also of market access in the sense of GATS Article XVI.  The existence of different
perfomance tests and timeframes for the establishment of different branches had an impact on market
access, and not only on national treatment.  He invited the representative of China to provide further
explanations on that issue.  Regarding the minimum capital requirements for branches in the banking
sector, he noted the argument provided by China. However, he was also interested in having a further
analysis by China with regard to national treatm ent. According to China, national treatment was
respected. However, he wanted to know, in China's view, to what extent the minimum capitalrequirements was in conformity with this principle.
23. Thirdly, regarding the "unexpected difficulti es" mentioned in the communication from the
European Communities (S/FIN/W/18), he got the impression that this issue – a fiscal matter – had not
been addressed by China.  He invited China to cons ider this issue further, particularly the question of
national treatment with regard to fiscal requirements for banks.
24. Fourthly, regarding the opening of branches in the banking sector, he noted that according to
China, that was a prudential measure.  However, he failed to understand why in addition to these very
high minimum capital requirements, specific timeframes were set for the expansion of the foreign
banks' networks.  These timeframes were evidently a restriction to the expansion of foreign banks in
the Chinese market.
25. Finally, regarding securities, the MFN principle and the trading of A shares by foreign
companies, he noted China's argument that the licence in question delivered before China acceded to
the WTO.  He noted, however, that there had been a change in the status of China, and that a license
had been granted to a joint venture since China acceded to the WTO.  He reserved the right to come
back to the question at a later stage.
26. The representative of the United States apprecia ted the hard work that China had put into the
implementation of its financial services commitments and the positive and serious spirit with which
China had undertaken that implementation effort.  Unfortunately, other Members were not always
provided access to the information needed to gauge the implementation progress.  In that vein, the
United States was disappointed that China did not provide written responses to the questions that had
been submitted by the United States and other Members in advance of this meeting.  This kind of
information was quite relevant to China's implementation and therefore as this review was an essentialelement of China's accession package, he requested China to provide written responses to the
questions submitted.  Although in the remarks of China there were some responses to some of the
questions that had been posed and submitted by the United States and other Members, providing these
answers in the context of this meeting did not pr ovide the opportunity for a meaningful review that
was intended by the transitional review mechanism.  There was not enough time to analyse some ofthe new information that was coming up.  That said, he responded preliminary to some of the replies
provided by China.
27. With respect to insurance, the United States did hold bilateral meetings in China, with
Chinese officials, in late September, and it was agreed to convene a follow up meeting to explore
alternatives to the high and redundant capitalisation requirements for insurers, which were a source ofconcern in light of national treatment and market-access commitments.  He remained concerned about
the two other regulatory issues that were addressed and expressed an interest in the Chinese
delegation's views.  First of all, China had committed to prevent licensing procedures and conditions
from acting as barriers to market access.  China also committed to ensure that such procedures andS/FIN/M/37
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conditions would not be more trade restrictive than necessary, that applicants would not need to be
invited to apply for a license, and that the application process would be transparent with opportunities
to cure deficiencies and reapply if necessary.  In its reply, China said that the new regulations
effective 1 February 2002, did not contain a multi-tier process.  However, articles 8 to 12 of the new
regulations did continue to maintain a multi-tier application process that did invite uncertainty anddelay.  In practice, there still appeared to be a need for an invitation to apply from the CIRC.  He
invited China to offer its plans for remedying this situation.
28. With respect to branching, China had committe d to allow non life firms to establish as a
branch and allow internal branching in accordance with a lifting of branch geographic restrictions.
China had also agreed it would not apply the qualifications for foreign insurers applying for a license
to the foreign insurers already established in China who were merely seeking authorization to
establish branches or sub-branches.  Nevertheless, the CIRC had taken the position that non-life firmsalready established in China wishing to open branches could not do so unless they first established a
subsidiary.  He asked whether China could confirm that it would adhere to its commitments and
permit internal branching by foreign non-life firms consistent with affairs out of China's geographic
restriction.
29. Finally, he addressed the issue of motor vehicle financing.  The United States saw the second
draft of the regulation circulated by the People's Bank of China, and did appreciate some of the
modifications that the PBLC had made in the latest draft.  The United States intended to provide
further comments on that draft to the People's Bank of China.  However, the United States continued
to be concerned by a number of aspects of the proposed regulation, including the level of
capitalization required and the qualifications requ ired from a company wishing to establish an auto
loan institution.  He noted China's statement about the need for more time to study this market and for
the People's Bank of China to establish market access in this sector.  However, he reminded Members
that China had committed to provide market access in this sector upon accession; in other words,
since 11 December 2001.  So, he was interested to hear from China when indeed the regulations
would be final, so that non-bank financial institut ions could begin to provide motor vehicle financing
in China.
30. The representative of Pakistan thanked the Chinese delegation for its detailed and
comprehensive replies.  Pakistan was of the view that despite the very onerous and indeed
unprecedented obligation placed upon China, the Chinese delegation responded very adequately to all
the questions put to them in pursuance to the TRM.  Pakistan was very satisfied with their responses.
He also expressed Pakistan's deep appreciation fo r all the measures taken by China to implement its
WTO commitments in a very meaningful manner.
31. The representative of Chinese Taipei said that credit should be given to the Chinese
delegation for its obvious efforts in preparing the responses to the questions and comments tabled by
his delegation and several others.  As one of the major trading partners and investors in China,
Chinese Taipei felt much obliged to address a number of legitimate concerns in areas where China
might have lapsed in its  implementation.  Chinese Taipei strongly believed that a smoothimplementation of China's accession Protocol was in the best interest of all Members concerned,
including China itself.  Chinese Taipei looked forward to a successful transitional review mechanism.
32. He then made some specific comments.  Chines e Taipei was of the opinion that the Chinese
delegation had made conscientious efforts in preparing all the documents.
33. Regarding the issue of auto financing by non-banking institutions, he reminded that it was
raised by the submissions made by the United States and Japan, dated 1 October.  Incidentally, he
found with pleasant surprise that a draft rule had been published by the People's Bank of China one
week later for comments.  Of course, that commitment was made to be available upon the accessionS/FIN/M/37
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of China, earlier this year.  But, the reasons presented by the Chinese delegate previously were quite
understandable because it required a very comprehensive inter-agency hearing and consultation. From
his perspective, the timely publication of this piece of legislation for comments was a development
worthy of attention.
34. Chinese Taipei had tabled a wide range of issues covering securities, banking and insurance.
Most of Chinese Taipei's concerns overlapped wi th those tabled by four other Members.  These
concerns lay in the unusually high capital requirements for foreign institutions, the lack of
transparency in Chinese regulations and the lengthy and uncertain licensing procedures.  Having said
that he turned to an issue that  was not answered by the Chinese delegation.  It was his understanding
that in order for a foreign financial institution to be able to operate in China, a so-called memorandum
of understanding for mutual cooperation in the regulation of the business was required.  He asked the
Chinese delegation whether the rationale for that could be provided.  Having said that, he noted thatChinese Taipei was a major trading partner of China, and a major foreign direct investor in China.  It
had invested more than a hundred billion dollars in China.  Therefore there was a legitimate need for
financing for Chinese Taipei investors in China. He reported that four banks from Chinese Taipei had
been given the status of representative office, and were waiting to be upgraded.  But in order to up-
grade their operation, they were requested to sign  a memorandum of Understanding with the Chinese
authorities, namely the People's Bank of China.  He wished that some kind of flexibility could be
created for this kind of document to be signed.
35. The representative of Cuba thanked China for the full and comprehensive presentation, and
for the information given concerning the tremendous efforts undertaken in order to meet the high
commitments undertaken in the financial sector.  The information provided showed that foreign
participation in this market was a sign of confidence, and that was an underlying factor to be kept in
mind constantly in this discussion.  She added that China was carrying out tremendous efforts in
ensuring that its commitments were met, and paid tribute to that endeavour on its part.
36. The representative of Canada expressed appreciation for China's efforts in moving forward
with meeting its commitments in the financial services sector.  He emphasized that Canada's concerns
regarding China's regime focused more on the specific details rather than the overall direction of
Chinese policies.  Turning to a matter of procedur e, he noted that in its statement, the Chinese
delegation referred to information provided in advance to the Secretariat and asked for further details
in order to have access to it.  He also asked whether a list of the Chinese delegation could be made
available.
37. He then raised some specific concerns in the area of insurance, banking, fund management
and transparency in general.  In the case of insurance and banking, Canada was concerned about thevery high levels of capital requirements, and their application on a branch-by-branch basis.  Canada
was also concerned by the cap on RMB borrowing, and noted the Chinese statement that this was a
draft regulation.  He hoped to have further discussion on this issue.  Regarding fund management, he
asked why Chinese mutual fund companies were not perm itted to be the lead partner.  With respect to
transparency, it was his understanding that the multi-tier, multi-stage approval process was in fact stillbeing applied, said that was a very complex process.  The issue of public comment was also very
important.  Canada's sense was that, when those regulations came out in December 2001, the period
for comment was very limited.
38. The Chairman then offered the floor to the Secr etariat to clarify the issue of the information
provided by China.
39. The representative of the Secretariat stated that the submission from China was received on
Friday.  It was being processed at that time.  It was submitted by China for circulation to the Council
for Trade in Services only, and it would be issued as S/C/W/218.S/FIN/M/37
Page 10
40. The representative of Japan expressed appreciation for the Chinese effort to increase market
access and transparency in the area of financial services.  He raised four main issues of concern.
41. Firstly, some of the questions raised by Japan had not been answered by China's statement.
He asked China how it intended to answer each of the questions posed by WTO Members, in what
manner and what timing.  He requested the Chinese delegation to circulate its responses to allMembers for transparency purposes.
42. Secondly on the geographical restrictions in the insurance sector, he asked the Chinese
delegation to provide an answer to the question posed in Japan's communication S/FIN/W/21 dated 1
October.
43. Thirdly, regarding the issue of licensing procedures in the banking sector, it appeared from
China's statement, that since it would take some time for foreign banks to establish a commercial
presence, therefore they would be prohibited from applying for another license during a certain period
of time. Since China said that it had studied the banking regulations of other countries, he asked China
whether it would identify the sources consulted.  He then referred to the specific question posed in the
addendum to document S/FIN/W/21, dated 14 October.  Japan had raised the issue of the licensing
procedures which prevented foreign financial institutions from applying for a license to the same city
if they had been denied the application for one y ear.  And the reasoning provided by China seemed to
be that since foreign financial institutions were busy in preparing the establishment of a new
commercial presence, it was not appropriate for them to apply for another license.  That reasoning did
not seem to apply to foreign financial institutions having been denied a license to operate in one city,
which could in fact apply another time to establish commercial presence in the same city.  He asked
the Chinese view on this.
44. And fourthly, regarding the issue of the proposed regulation of inter-bank fund raising, he
associated himself with the statement made by Canada in thanking the Chinese authorities for
providing interested private sector participants with an opportunity for comment.
45. The representative of Switzerland thanked China for the information provided. Switzerland
acknowledged that the Chinese authorities were facing important tasks in ensuring the commitments
made during the accession process. The Swiss authorities attached great importance to the conformity
of domestic regulations with international commitmen ts.  The Chinese authorities had already adapted
and adopted several laws and regulations, and a certain number of initiatives were underway.
Switzerland encouraged China to continue with this work.  Taking into account the numerous recent
developments, Switzerland wished to clarify the current regulatory situation, and associated itself with
the previous interventions of other Members.
46. The representative of China said that, according to his understanding of section 18 of
accession protocol, China had no legal obligation to provide answers in writing.  China believed that a
commitment to provide answers in written form went beyond paragraph 18 and would impose an
excessive burden on China.  He understood that some members might have additional follow-up
questions, but the transitional review mechanism was only one opportunity.  There were also other
opportunities. Members could collect information from China's enquiry point, which was establishedimmediately after accession to the WTO.  Or, discussions could be held bilaterally.  Any Member
having any follow-up question might approach his delegation.  China would be pleased to discuss
with Members.
47. The transitional review mechanism was an 8 to 10 year programme, and nobody could expect
China to fulfill all the commitments overnight, in one year time.  That was unrealistic.  China had
done its utmost and would continue to do its best to fulfill its obligations.  China was very serious
about its commitments and obligations to the WTO but needed time to fulfill all of them.S/FIN/M/37
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48. Regarding the questions raised by Chinese Taipei, China made the following clarification.
The normal trade relations in light of WTO principles and rules between China and the separate
customs territory Chinese Taipei had not yet been established. Such a situation was caused by
unilateral restrictions erected by Chinese Taipei. China's policies towards Chinese Taipei were open
and non-discriminatory. Therefore, it was meaningless for Chinese Taipei to ask any specific questionto China while it refused to fulfill its basic oblig ations under the WTO to allow the normal flow of
goods, services and people across the strait. It was China's hope that all this fundamental issues would
be first dealt with through bilateral channels.
49. He took note of the additional questions raised  by Members. Many of those concerns had
already been answered in the introductory statemen t. He focused instead on some specific questions
raised.
50. Firstly, regarding the tax issue raised by the European Communities, he said that, having
checked with the relevant authorities, he was not aware of such a regulation and did not know that
such measures applied differently between domestic and foreign financial institutions.
51. On the questions regarding the registered capital and the geographical limitations in the
insurance sector, he said that some foreign in surance companies still misunderstood the Chinese
capitalization requirements and operation ratios. According to the Insurance CompaniesAdministrative Measures, insurance companies doing business on a national level should have at least
RMB 500 million in paid-up capital. Those doing business in specific regions should have at least
RMB 200 million in paid-up capital. A branch of a foreign insurance company was required to have
an operational capital of RMB 200 million, and could establish up to two sub-branches in its
operational region without requirements for additional capital. If those companies wished to establishmore sub-branches in addition to those two, an additional RMB 50 million was required for each
additional sub-branch until the capital reached RMB 500 million, and automatically became national
companies.
52. Regarding the question on high-level senior management personnel for foreign insurance
companies, he said that the fact that China allowed foreign senior management personnel to holdposts in China did not mean that there was no requirement for the qualification of their posts.
53. Regarding the insurance regulatory system in China, he said that the Chinese government
regulated life insurance and non-life insurance markets separately.  And this was for the sake of
prudential administration.
54. On the question of whether China was going to further liberalise its restriction on life
insurance, he said that China's commitments on life and non-life insurance were different.  Actually,
the question of whether China was going to further liberalise its life insurance should be discussed inthe next round of market access negotiations.
55. Regarding the opening of the cities allowing fo reign insurance companies to enter into China,
it was true that some foreign insurers already had insurance operations in some cities like Beijing,
Suzhou, and Tianjin.  These cities had already opened their markets to some foreign insurance
companies.  But attention should be drawn to the fact that all of them got an approval before China'saccession.  China would, in accordance with its commitments, gradually open more cities to foreign
insurers.
56. He then turned to the questions on banking services.
57. Regarding the 70 per cent limit on foreign exchange deposit versus total foreign exchange
assets,  he said that prior to the accession to the WTO the ratio was 40 per cent.  Following theS/FIN/M/37
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accession, the ratio increased to 70 per cent, and would  be further relaxed during the five  year
transitional period.
58. Regarding transparency in licensing of foreig n branches, he said the China had transparent
and detailed provisions, contained in Articles 7 and 10 of the regulation.  In addition, Articles 7 and
14 contained the implementation details.
59. With respect to transparency in applicati on procedures, upon reviewing the application
materials, the People's Bank of China would inform the applicant whether the materials were
complete or not.  If not, the People's Bank of China would ask the applicant to supplement these
materials.  And if complete, the People's Bank of China would issue the notice of application
materials' completeness.
60. Regarding the intervals between applications , according to China's understanding of its
accession commitment in paragraph 308 of the report of the Working Party on the accession of China,the term "at its discretion" did not necessarily mean the absence of an interval for applications.  For all
cases, the problems leading to the rejection could not usually be resolved within a short period of
time. Therefore, China's requirement in the detail ed implementation rule was consistent with its
prudential purpose.
61. He then addressed  the questions on securities services, particularly the issue concerning the
requirement for a domestic fund management company as the lead partner in a new sino-foreign fund
joint-venture company.  Article 7 of the Rule on the Settlement of the Fund management company
with foreign shareholding specified that domesti c share holders of a sino-foreign joint-venture
company shall meet the requirements for shareholders of fund management companies stipulated by
the CSRC.  Meanwhile, China issued a set of interim measures on the administration of securitiesinvestment funds, which was one of the major regulations regarding the establishment of fund
management companies in China.  Article 24, paragraph 1, of the measures stipulated that for
establishing a fund management company in China, the lead partner shall be a securities company or a
trust and investment company funded in accordance with laws and regulations.  Therefore, under
China's existing legal framework, a Chinese fund management company was not permitted to be thelead partner in either a new sino-foreign fund joint venture company or another domestic fund
management company in order to avoid any illegal interest to transfer between the old Chinese fund
management company and the newly set up companies.
62. Finally, regarding the issue raised by some Members about an obligation of written response
to the questions, he said that China would spare no efforts in answering as many questions from other
Members as possible in the process of this review.  For transparency purposes China had provided the
necessary information in advance to the Council for Trade in Services and his previous statementalready included various concrete responses to the major questions.  Additional responses had just
been given to some of the follow-up questions.
63. The representative of Chinese Taipei said that he could not agree more with China that China
would implement this WTO obligation in a non-discriminatory manner.  Therefore, it was only
appropriate for Chinese Taipei to address some of its legitimate concerns.  Chinese Taipei had somereservations about China's reference that some of those issues were bilateral in nature.
64. The representative of India thanked the Chinese delegation for the efforts undertaken in
preparation of the transitional review mechanism.  The statement made by China and the subsequent
clarification gave comprehensive information on the regulatory initiatives and changes made by the
Chinese authorities to fulfill its commitments in financial services.  He also welcomed the observationmade by the Chinese delegation that it would addres s some of the follow-up questions in the bilateral
context.  He finally considered that replies so far had been satisfactory.S/FIN/M/37
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65. The representative of the United States said that his country appreciated the opportunity to
discuss issues of concern bilaterally, but reminded China that this was a multilateral review of its
implementation and not simply a bilateral process of exchange.  In the United States view, unless all
questions were answered in writing and in an appropriate form, the review had not been completed.
While bilateral exchange was important, a multilateral review required a more thorough process thanthe one engaged in this meeting.
66. The Chairman asked the Chinese delegation whether, as requested by Canada, the list of
delegates could be provided, along with the statement.
67. The representative of the European Communities also expressed appreciation for China's
efforts to respond to questions by other Members.  However, he added that this was a multilateral
review and there were still some questions which remained unanswered and further clarification was
needed on all points raised by Members.
68. The representative of China agreed that for transparency purposes, the list of Chinese
delegates be circulated among Members.  He also agreed to further discussion at the bilateral level,
but China's position was that bilateral discussions had nothing to do with the transitional review
mechanism.
69. The representative of Pakistan said that China's offer of bilateral discussions would definitely
supplement the multilateral process.  He also welcomed China's offer to circulate the statements made
and the answers to the questions.
70. 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 25 October. It would be a factual report, stating basically the following:
- 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 21 October
2002;
- that written communications had been received from five WTO Members, namely the
European Communities, the Unites States, Canada, Japan and Chinese Taipei; and,
- that the details of the discussion could be found in the meeting report, contained in
document S/FIN/M/37.
71. The Committee so decided.
C. TECHNICAL ISSUES
72. The Chairman recalled that, at the last mee ting, Thailand indicated that many bilateral
requests contained interesting technical issues, which could eventually be taken up by the Committee
in due course. He regretted however that no communication had been received in that respect.
73. The representative of Thailand reiterated her delegation's understanding that Technical Issues
would not only cover classification questions but  also other things, such as regulatory issues.
Thailand's position was that regulatory issues, such as transparency, could also be covered under
Technical Issues.  In Thailand's view regulatory issues in financial services deserved consideration bythe Committee.  Thailand might raise some regula tory issues under this item in the future.S/FIN/M/37
Page 14
74. The representative of Hong Kong, China echoed Thailand's call, or indeed the statement of
fact, that this forum and also this agenda item on technical issues would remain open for Members to
raise any technical issues arising from bilateral discussions, which might be of relevance to the
financial services sector.  In this regard, he agreed with the Thai delegation that transparency might be
eligible to be raised by Members as a technical issue under this agenda item.  He was of the view thatalthough bilateral negotiations and discussions were still at an early stage and Members needed more
time to reflect on the range of issues, Members should feel free to raise issues arising from bilaterals,
so that those issues could benefit form the wisdom of this Committee and also benefit from open and
multilateral discussions in this forum.
75. The Chairman thanked Thailand and Hong Kong, China for raising this pertinent issue.  He
confirmed the understanding of the Committee that under its broad terms of reference on technical
issues, regulatory issues, including transparency-relat ed issues, fell into the ambit of technical issues.
To conclude, he reminded Members that this agenda item was broad enough to allow for the
discussion of any technical issue that Members might want to raise, including those arising in the
bilateral requests. Discussion of those issues could constitute a good combination of bilateral
negotiations and multilateral work.
76. The Committee took note of the statements made and decided  to revert to this item at the next
meeting.
D. RECENT DEVELOPMENTS IN FINANCIAL SERVICES TRADE
77. The Chairman recalled that at the last meeting the Committee heard very interesting
presentations by the representatives from Chinese Taipei and Mexico. Additionally, Canada circulated
a room document on regulatory transparency mechanisms in that country.
78. The representative of Australia took the opportunity to briefly set out the recent experience of
Australia, where there had been substantial reform in financial market regulation, to enhance the
soundness, competiveness and efficiency of the Australian financial market.  These and other reforms
had sent Australia into a sustained period of economic growth.  He announced that Australia would
submit a paper, on which his comments were drawn.
79. Australia scheduled commitments on financial services that gave a high level of openness to
Australia's financial market.  The WTO Trade Po licy Review of Australia (WT/TPR/S/104) found
that Australia had a liberal financial sector.  The Australian currency traded freely in the market,
foreign banks operated freely alongside Australian banks in the domestic market, and there was a
growing pool of savings in the market with compul sory superannuation schemes.  Privatizations and
demutualization had also expanded the equities market.  Australia now had the seventh largest funds
management marketplace in the world, and the largest in the Asia-Pacific outside Japan.
80. Total funds under management were now in excess of US$ 350 billion and Australia's central
bank projected these numbers to increase substantially over the next two decades.  As indicated in
Australia's recent Trade Policy Review, these  financial sector reforms followed two major reports of
enquiry known as the Campbell inquiry report in 1979 and the "Wallis" inquiry report in 1997.  These
reforms, flowing from these reviews, had been based on promoting greater efficiency through
enhanced competition, removing unnecessary regulation and maintaining confidence and stability in
the financial system;  while preserving the ability to be responsive to innovation and market
development.  In Australia, competition laws also applied nationally across the country, and following
agreement in 1996, among the State and Australi an commonwealth Governments, all governments
applied the principle of competitive neutrality.  This principle aimed at ensuring that competitionbetween private and public business was down on the basis that it was competitively neutral, which
meant that a public business gained no commercial advantage from having a government as its owner.S/FIN/M/37
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81. From the regulatory reform in Australia, benefits had been seen in the financial sector and the
economy more generally, notably among these was that it had helped Australia to sustain strong
economic growth in recent periods, and to manage chocks both from external downturn in Australian
partners and internally from significant corpor ate chocks including in the insurance industry.
Australia's financial reforms were trade expandin g as they increased certainty in the regulatory
structure, offered more flexibility for business to adapt corporate structures suited to the needs of
consumers with a full range of services and products.  The reforms had also provided for competitive
neutrality across the financial industry.  This streamlining was making redundant some reservations to
the Understanding on Commitments in Financial Services, and might provide scope for Australia to
increase its level of commitments.
82. Australia, with an open financial sector and  through adopting a high level of commitments
under the Understanding on Financial Services, could be seen as an example of how an open soundlyregulated financial sector might be key to fostering economic activity and wellbeing in a country.
83. The representative of the United States said that this agenda item was a useful vehicle to
address some issues and allowed countries to relate their positive experiences from reforming their
financial services sector.  The United States was gratified that at the July meeting a number of
Members, including Canada, Chinese Taipei and Mexico, described their recent financial reforms,emphasizing transparency in their regulatory framew orks for financial services.  In the United States
view, it was clear that transparency regarding consultations with the public was beneficial and helped
avoid unintended consequences of regulation.  The Committee would benefit from other countries
relating their practices in the future. She agreed wi th the point made by Japan in the past that this
issue was particularly relevant in the financial sector, which was highly regulated and where lack oftransparency could therefore effectively mean lack of access to markets.  Transparency in applying
regulations, both in developing and developed countries, was also an important contributing factor to
financial markets stability.  Some Members had questioned whether financial services transparency
issues were different from horizontal transparency issues, and whether it was appropriate to carry out
financial services specific discussions.  The United States did not believe the question was so relevant,since financial services were characterized by a discrete regulatory community, a highly regulated
sector and a substantial history, including through participation in the IMF/World Bank programmes
in developing transparency procedures.  The best place to initially share ideas was the financial
services specific forum, namely this Committee.
84. The representative of Hong Kong, China inform ed Members that, as indicated some time ago,
his delegation had been working on a submission on the issue of e-finance.  In that regard, he
announced that Hong Kong, China would submit a paper very shortly.  The purpose of the paperwould be to share with Members information on th e latest market trends in Hong Kong, China in
respect of on-line banking and on-line trading in secur ities and futures. The intention was also to share
approaches and issues related to the regulatory fr amework.  With the growth of on-line banking and
on-line trading in Hong Kong, China in the past few years, currently most of the banks, which
represented around 80 per cent of the total custom ers deposit in Hong Kong, China, had already
introduced internet banking services.  The total market  turnover of internet trading in securities and
futures had risen from merely 1 per cent in April 2000 to around 11 per cent in the fourth quarter of
2001.  On-line banking and on-line trading in securities and futures was a fast growing area, and one
where regulators saw many challenges in undertaking their regulatory duties. In this regard, Hong
Kong, China regulators put particular emphasis on the principle of technological neutrality.  Allsuppliers of electronic banking, and of securities and futures trading, were subject to the same set of
prudential and custodian requirements as those applied to conventional service suppliers.  In addition,
there were specificities in e-trading and e-banking that would require some specific guidelines and
instruments for regulators to conduct their job properly.  He hoped to be able to submit the paper
before the next meeting of the Committee, and suggested that a formal presentation of the paper bemade on that occasion.S/FIN/M/37
Page 16
85. The Chairman confirmed that a formal presentation of the paper could be arranged for the
next meeting.
86. In concluding, the Chairman highlighted the importance of using this agenda item to discuss
these of issues, which were of extreme relevance for the negotiations, since they gave an idea about
the context in which financial services trade take s place. He encouraged other Members to come up
with similar presentations.
87. The Committee took note of the statements made and decided  to revert to this item at the next
meeting.
E. PRESENTATION BY THE WORLD BANK OF ITS POLICY RESEARCH REPORT "FINANCE FOR
GROWTH : POLICY CHOICES IN A VOLATILE WORLD "
88. The Chairman recalled that at the last meeting, under Other Business, Canada suggested that
the Committee invite the World Bank to make a presentation of its 11th Policy Research Report,
entitled "Finance for Growth". This presentation, which could be organized following the format of
previous presentations by international standard setting organizations and the International Monetary
Fund, could take place during the next cluster of services meetings, in December 2002, provided
World Bank representatives were available on those dates.
89. The representative of Canada said that this would be a very useful initiative and hoped that
Members would support it.  He added that the su mmary of the World Bank publication was available
on the World Bank web-site.
90. The representative of the European Communities agreed that this was an excellent idea and
fully supported the Canadian initiative.
91. The Chairman said that an invitation to the World Bank would be extended on behalf of the
Committee, and a seminar on this account would be organized at the time of the next meeting.
92. The Committee so decided.
F. DATE OF THE NEXT MEETING
93. The Chairman suggested that the Committee hold  its next meeting during the next cluster of
services meetings, in December 2002. The exact date would be announced in due course.
94. The Committee so decided.
G. OTHER BUSINESS
95. The representative of China noted that in the report of the last meeting, under item C ("Recent
Developments in Financial Services Trade"), there were some words and phrases expressed by
Chinese Taipei, which in China's view were not appropriate.  China expressed its concern on that
wording, and expressed its strong reservation.  She requested that this statement be recorded in the
report of this meeting.
96. The representative of Chinese Taipei said that China's reference to Mr. Tseng's statement at
the last meeting as inappropriate was not acceptable.  He requested this statement to be fully
registered in the minutes of this meeting.
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