. /. RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/W/44 
2 August 2005 
 (05-3474) 
Committee on Trade in Financial Services Original:   English 
  
 
COMMUNICATION FROM THE EUROPEAN COMMUNITIES 
 
China's Transitional Review Mechanism 2005
 
  
 The following communication, dated 27 July 2005, from the delegation of the European 
Communities is being circulated to the Members of the 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 in September 2005, in order for the Chinese authorities to have 
sufficient time to provide complete replies. 
2. Once the information to be provided by Ch ina in accordance with paragraph 8 and 
paragraph IV.3 (a) of Annex 1A of its Accession Prot ocol has been received, the EC might come back 
with additional questions. 
3. The EC welcomes the expansion of geographi cal scope for foreign-funded financial 
institutions at the end of 2004, as announced at last year’s TRM, as well as the lifting of the remaining 
geographic and product restrictions in the insurance sector. 
4. The EC also welcomes the simplification of the application process for foreign financial 
institutions wanting to set up representative offices in China, the preferential review and approval 
procedures for the applications submitted by foreig n banks to establish new entities or offer new lines 
of business in China’s western and north-eastern regions, and the expedition of foreign bank applications for setting up intra-city sub-branches. 
5. Minimum working capital requirements for direct  branches of foreign banks remain however 
extremely high, ranging from RMB 100 million to  RMB 500 million per 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. At last year’s TRM, China said 
it would continue to adjust the operatio nal capital requirement in the future. 
 Considering the still extremely high level of capital requirements, could China please 
indicate when it intends to further redu ce minimum capital requirements for branches? 
6. Moreover, minimum working capital is required for each direct branch in China from the 
same bank, irrespective of the number of branches, and capital adequacy ratios have to be met for 
each individual branch, in isolation from the othe r branches. This still app ears excessive as Chinese 
authorities also require that the head office abroad of the foreign bank guarantees all liabilities of its 
branches in China. S/FIN/W/44 
Page 2  
 
  Could China please indicate whether it wo uld consider applying these requirements to 
the overall commercial presence of a bank in Ch ina, and not to each of its branches? 
7. China requires that 30% of the working capital of  foreign branches at any time be deposited at 
a local bank on a list defined by Chinese authorities or , in case of Renminbi, alternatively be used to 
buy Government bonds. 
 Could China please explain why it considers that the requirement that those funds be 
lodged with a local bank (excluding foreign banks established in China) would be in line with its national treatment commitment? Would China be willing to reconsider whether 
it is really necessary for such a large proporti on of working capital to be deposited with 
another bank? 
8. China has made full national treatment commitments in banking subsector (k) Provision and 
transfer of financial information, and financial dat a processing and related software by suppliers of 
other financial services . China’s regulatory regime in this subsector is, however, applied only to 
foreign suppliers, and the current regulator, through an  affiliate, appears to be engaged in competition 
with other suppliers. 
 In light of China’s national treatment commi tments and the potential for conflicts of 
interest, would China be open to considering alternative supervisory approaches covering both domestic and foreign suppliers, e.g. having the subsector supervised by a 
financial services regulator? 
 
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