. /.  RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/W/70 
12 October 2009 
 (09-4940) 
Committee on Trade in Financial Services Original: English 
  
 
COMMUNICATION FROM THE EUROPEAN COMMUNITIES 
 
Transitional Review Mechanism Pu rsuant to Paragraph 18 of 
 
the Protocol of the Accession of the People's Republic of China ("China")   
 
 
 The following communication, dated 9 October 2009, 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 on 2 November 2009, 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 Council for Trade in  Services in accordance 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. 
4. The foreign ownership cap for existing Chinese ba nks appears to still be in place. Considering 
that China has not scheduled limitations on foreig n ownership, could China explain the 20 per cent 
cap on equity investment by a single overseas fi nancial institution in a Chinese-funded financial 
institution and clarify when such limitations will be lifted?  Further, could China explain why a 
maximum of 25 per cent of foreign equity investment classifies a Chinese bank as a foreign bank and the implications of this classification on the bank's business scope and regulatory obligations? 
5. Foreign-funded banks are only permitted to appl y for branches one at a time.  Foreign bank 
branches are treated as separate legal entities with regard to capital ad equacy ratios and, in addition, 
there still remains a requirement of three years of operation and two continuous years of profitability 
before foreign bank branches are permitted to carry out  local currency business.  In this respect, could 
China please: 
(a) Explain why branch applications are only allowed one at a time, given that its 
schedule does not appear to contain a quantitative restriction on branch licenses; S/FIN/W/70 
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  (b) Clarify when it will treat branches of foreign banks in China as part of a consolidated 
network, and not as separate legal entities as regards calculation of prudential ratios, i.e. base the calculation on the overall presence of a bank, in particular taking into account that a foreign bank with multiple branches in China is already required to designate one to be a management branch  responsible for managing and monitoring 
the networks business operation in China? 
6. China has not opened its electronic payments sect or to foreign service suppliers and currently 
only China Union Pay is allowed to operate in its market, maintaining a monopoly on electronic 
payment transactions.  Could China please explain wh y China Union Pay is allowed to operate in a 
monopoly and how it envisages opening the market to foreign operators in order to comply with its 
GATS commitments? 
7. According to the section 13(3) of the draft Bank Card Policy shared by PBOC with individual 
banks in April 2007, foreign banks must relo cate their data processing systems onshore before 
receiving the bank card licence, whereas the current bank card policy 13.5 states that data processing 
systems should be "safe and efficient" without specifying where they should be located.  Though the 
draft Bank Card Policy seems not be promulgated, fo reign banks are requested to relocate their data 
processing systems already creating de facto discrimin ation for foreign banks.  In this respect, could 
China please explain this policy change, which cannot be justified as a prudential measure?  How is it 
in line with China's WTO commitments?  
8. We welcome the adoption of the new Insura nce Law, which goes some way in removing 
obstacles for foreign insurance companies, especially  in the field of reinsurance.  However, the 
geographical expansion of foreign insurers is s till significantly hampered by slow and unpredictable 
regional-level licensing processes, for example the administrative practice of accepting one application for a license for a single branch at a time, whereas Chinese insure rs can apply for several 
licences simultaneously as can be seen from publicly av ailable approved licences records.  As this is 
an issue that has been ongoing for some time now, the EC request China to clarify which steps it has 
taken to ensure equal treatment between domestic and foreign insure rs with regards to branch/sub-
branch licensing and geographic expansion? 
 
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