. /.  RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/W/66 
14 November 2008 
 (08-5567) 
Committee on Trade in Financial Services Original: English 
 
 
  
COMMUNICATION FROM THE EUROPEAN COMMUNITIES 
 
Transitional Review Mechanism Pu rsuant to Paragraph 18 of 
 
the Protocol on the Accession of the People's Republic of China  
  
 The following communication, dated 12 November 2008, from the delegation of the European Communities, is being ci rculated to the Members of th e Committee on Trade in Financial 
Services. 
 
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1. The EC is transmitting comments and questions in advance of the meeting of the Committee 
on Trade in Financial Services on 1 December 2008, in order to allow the Chinese authorities 
sufficient time to provide a complete response. 
2. In order to ensure effective review of the implementation by China of its commitments, the 
EC requests China to provide responses and releva nt information to the following questions in 
advance of the meeting of the Committee in accord ance with the paragraph 18 of the Protocol of 
Accession of China. 
3. The EC reserves its right to raise additiona l questions, upon receipt of responses to its 
questions and comments by China, in accordance with paragraph 8 and paragraph IV.3(a) of Annex 
1A of the Protocol of Accession of China. 
4. The EC has noted the adoption of the Regulation on the Administration of  
Foreign-Funded Banks  and, in particular, the possibility for foreign banks to incorporate as 
subsidiaries.  The EC expects that China will pr ovide full national treatment in line with its WTO 
commitments and that the establishment of such subsidiaries will not be subject to excessively 
onerous qualification requirements and waiting periods  not listed in its WTO schedule.  In this 
context, could China please clarify the following: 
(a) Does it intend to permit foreign-funded banks to  fulfil the requirement to deposit 30% 
of their capital by doing so in foreign banks incorporated in China, on an equal basis 
with local banks? 
(b) Could China confirm that it has now suspended the lending quotas for banks? 
(c) Could China explain how the additional five-year waiting period for the conduct of 
local currency business falls within the prudential carve-out? S/FIN/W/66 
Page 2  
 
  5. The foreign ownership cap for existing Chin ese banks appears to still be in place.  
Considering that China has not scheduled limitati ons on foreign ownership, could China explain the 
20 per cent cap on equity investment by a single overseas financial institution in a Chinese-funded financial institution and clarify when  such limitations will be lifted? 
6. Minimum working capital requirements for direct  branches of foreign banks also remain 
extremely high, amounting up to RMB 300 million pe r branch depending on the business scope.  
These requirements are much higher than minimum capital requirements in most other countries and effectively limit market access for foreign banks.  Fu rthermore, banks that incorporate locally are only 
allowed to retain one branch, under very strict conditi ons and, in addition, the restrictions on foreign 
debt severely hamper the possibility of outside fi nancing for branches of foreign banks.  In this 
respect, could China please: 
(a) Explain why it has introduced a one-branc h cap, given that its schedule does not 
appear to contain a quantitive restriction on branch licenses? 
(b) Justify the need for such high levels  of capital requirements per branch? 
(c) Clarify when it will treat branches of foreign banks in China as part of a consolidated 
network, and not as separate legal entities and thus calculate prudential ratios on the 
basis of the overall presence of a bank? 
(d) Clarify whether it intends to lift the restrictions on foreign debt? 
7. The section 13(3) of the draft Bank Card Policy shared by PMOC with individual banks in 
April 2007, foreign banks must relocate their data processing systems onshore before receiving the 
bank card licence, whereas the current bank card po licy 13.5 states that data processing systems 
should be "safe and efficient" without specifying wher e they should be located.  In this respect, could 
China please explain this potential policy chan ge, which seems not warranted to mitigate 
infrastructure risks? 
8. The geographical expansion of foreign insurers  is still hampered significantly by slow and 
unpredictable regional-level licensing processes, for example the need to apply for licenses for one 
branch at a time, whereas Chinese insurers can appl y for several licenses simultaneously.  EC request 
China to clarify which steps it has taken to ensu re equal treatment between domestic and foreign 
insurers with regards to branch/sub-br anch licensing and geographic expansion. 
 
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