RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/W/61 
29 October 2007 
 (07-4662) 
Committee on Trade in Financial Services Original:   English 
  
 
COMMUNICATION FROM THE UNITED STATES 
 
Transitional Review Mechanism Pu rsuant to Paragraph 18 of 
 
the Protocol of Accession of the People's Republic of China ("China")  
 
 
 
 The following communication dated 26 Oc tober 2007, from the delegation of the 
United States, is being circulated to the Members of the Committee on Trade in Financial Services.  
 
_______________ 
 
 
Questions from the United States to China  
concerning Financial Services  
 I. INSURANCE SERVICES 
1. Under the terms of China’s accession to the WT O, foreign insurance companies operating in 
China at the time of China’s WTO accession have the right to continue to operate under the conditions 
and approvals existing at that time.  Can China confirm that these companies are not required to 
comply with more recently issued regulations, im plementing rules and other measures, including with 
regard to form of establishment, operations, financ ial structure and capital, to the extent that these 
measures would alter the conditions and approvals under which these comp anies have been operating?  
If not, please explain how this treatment is c onsistent with China’s WTO obligations.  
2. The United States remains concerned that Chin a in practice does not allow foreign life and 
non-life insurance subsidiaries established in China to apply for and receive multiple, concurrent 
approvals to expand through internal branches.  Under current practice, foreign life and non-life 
insurance subsidiaries may only apply for and obtain c onsecutive (i.e., one at a time) approvals.  This 
practice is inconsistent with China’s own re gulations, which allow for multiple, concurrent 
applications and approvals.  In contrast, establis hed and start-up Chinese insurers may apply for and 
do receive multiple, concurrent approva ls to establish internal branches. 
(a) Please explain how China justifies this tr eatment in light of China’s WTO national 
treatment commitments.   
(b) Can China confirm that it will fully implement its own regulations regarding internal 
branching and will permit foreign subsidia ries to apply for and receive multiple, 
concurrent approvals for internal branches? 
3. China requires life and non-life insurance companies to deposit RMB 200 million registered 
capital for an initial establishment as a subsidiary.  China also requires these insurance companies to 
deposit an additional RMB 20 million in registered  capital for the establishment of each additional S/FIN/W/61 
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  location (or branch) until total registered capital for a company reaches RMB 500 million.  What is 
China’s prudential justification for th is additional capital requirement?   
4. U.S. non-life insurance companies have not been  able to obtain approval to supply political 
risk insurance.  Can China confirm that CIRC will meet China’s WTO commitments by approving 
applications from non-life insurance compan ies to supply such insurance?   
5. With regard to the reinsurance sector, the United States is concerned that the Regulations on 
the Administration of Insurance Business issued by the China Insu rance Regulatory Commission 
(CIRC) in 2005 may require insurance companies that are seeking reinsurance to provide right of first 
refusal to reinsurance companies established in China.  These regulations also may result in 
limitations on the ability of a foreign direct insure r to cede reinsurance to a parent or affiliate 
company.  The United States notes that China agr eed as part of its WTO accession commitments to 
phase out limitations applying to the reinsurance sector.  In last year’s transitional review before this 
Committee, China stated that these regulations do not impose a mandatory requirement on insurance 
companies to source reinsurance from reinsurance co mpanies established in China.  However, China 
also explained that insurers are required to comply with a provision of these regulations specifying 
that insurers should offer a "right of first bid" to reinsurance companies established in China.   
(a) Could China provide further detail regardi ng how this "right of first bid" works in 
practice?  Could China please confirm that this element of these regulations does not require foreign insurance companies to o ffer reinsurance contracts to reinsurance 
companies established in China before seeking supply of reinsurance on a cross-
border basis?  
(b) Could China also clarify its reference to "relevant laws and regulations" that apply to 
cross-border transactions of reinsurance?   
(c) Please explain how China plans to ensure that these regulations  do not result in any 
inconsistencies with China’s GATS obligations. 
6. CIRC’s Provisional Measures on the Administration of the Overseas Utilization of Insurance 
Foreign Exchange Funds , issued in August 2004, establish qualifying thresholds (e.g., total assets of 
RMB 5 billion) for insurers to be able to invest  their foreign exchange funds in overseas funds or 
equities.  Even though this threshold applies to al l companies, in practice, only the very largest 
insurers, in most cases Chinese-ow ned companies, will have the leve l of assets necessary to qualify 
for such treatment unless CIRC recognizes the asset s of the parent of the foreign insurer when 
determining the asset level of a foreign-invested in surer.  Is China willing to take into account the 
assets of the parent of a foreign insurer to  fulfil China’s asset threshold requirements? 
7. Pursuant to Article 8 of CIRC’s Interim Regulations for Insurance Assets Management 
Companies , which became effective on 1 June 2004, only insurers that have held licenses for more 
than 8 years are permitted to apply to establish an insurance asset management  company.  It appears 
that this provision applies only to insurers that ha ve been operating in China for those 8 years, which 
would exclude all foreign insurers entering China’ s market since China’s WTO accession.  China has 
previously stated that this limitation applies to bot h domestic and foreign insurers.  Nevertheless, this 
limitation has a disproportionate impact on forei gn insurers.  We note that during last year’s 
transitional review before this Committee, China expressed concerns about protecting the safety of 
assets under management.  Is China willing to take  into account global insurers’ international 
operating experience to fulfil China’s prior experience requirements?  If not, why not? 
8.
 Could China please clarify its views on whether foreign insurance companies would in any 
circumstances not be allowed to directly manage their own assets but be required to engage a separate  S/FIN/W/61 
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  Insurance Asset Management Company to provide su ch services?  If such a requirement exists, on 
what basis would China justify such requirements and how would that be c onsistent with China’s 
WTO obligations?  
9. The United States appreciates this initial opportunity to learn more about the possible 
structure and operations of China Post as an insu rance supplier and its anticipated treatment under 
Chinese law in comparison with other suppliers of insurance services.   
(a) The United States understands that the ne w China Post insurance entity would be 
established as a separate entity.  Is this correct?   
(b) Will a government authority or a private entity control the China Post insurance 
entity?  If so, what government authority or private entity will exercise control? 
(c) The United States understands that CIRC woul d be the primary regulator of this new 
entity.  Is that correct?  Would any other Chinese authorities be involved in the regulation of the new entity?  If so, how  would the regulatory responsibilities be 
shared?    
(d) Can China confirm that it would apply the same regulatory requirements to the new 
China Post insurance entity as to an y other supplier of insurance?   
(e) The United States understands that the ne w China Post insurance entity would sell 
life insurance products.  Is that correct?  Has China Post received a license to supply 
life insurance services?   
(f) Are there plans for the China Post insuran ce entity to sell any products other than life 
insurance?  
(g) In which regions of China would the Chin a Post insurance entity provide insurance?  
(h) Can China confirm that private sector companies (including foreign companies) 
would be allowed to distribute their produc ts through any new China Post insurance 
network? 
10. In December 2004, CIRC allowed foreign comp anies to provide comments on the proposed 
revisions to the Insurance Law.  Please provide an update on the status of the revision that was 
submitted to the State Council for review. 
11. CIRC issued the Measures on  Administration of Chinese Representative Offices of Foreign 
Insurance Institutions .  Article 18 of that measure imposes a number of onerous requirements on 
general and chief representatives.  These representa tives are required to be principally stationed at 
their offices, to spend a minimum of 240 days in Ch ina, not to absent themsel ves from China for more 
than 30 days at a time, and to submit a report to CIRC and designate a substitute whenever they are 
absent for more than 14 days.  Can China further clarify why these requirements would be needed for 
prudential reasons?  
II. BANKING AND RELATED SERVICES 
12. In the GATS Schedule accompanying its Protoc ol of Accession, China committed to phase 
out geographical, client (including for local currency business) and scope of business limitations for 
foreign financial institutions provi ding banking services within five years after its accession, or by 
11 December 2006.   S/FIN/W/61 
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  (a) At last year’s transitional review befo re the Committee, the Chinese representative 
confirmed that foreign-funded banks will only be "allowed to conduct local currency 
business for all kinds of clients after incorpor ation in China", that is, they will not be 
allowed to engage in local currency business as branches.  Please explain how China 
intends to bring this limit ation on scope of business due to juridical form into 
conformity with its GATS commitments. 
(b) The United States understands that under the Regulations on the Administration of 
Foreign-funded Banks , issued by the China Banking Regulatory Commission 
(CBRC) on 8 November 2006 and effectiv e on 11 December 2006, branches of 
foreign banks in China may only accept retail deposits in excess of RMB 1 million.  
As China develops its deposit insurance syst em, is China considering adjusting this 
threshold to the level being considered for coverage by deposit insurance?   
(c) Please also clarify how CBRC’s regulations would affect retail lending from foreign 
branches and how that would be consis tent with China’s GATS Schedule after 
11 December 2006, given that China was required to phase out any limitations on 
scope of business.  
13. At the 2005 transitional review before this Comm ittee, China stated "that in general there was 
no limitation on the share of foreign banks in fina ncial institutions".  However, China currently 
maintains a policy limiting the equity share of a single foreign investor in an existing Chinese-
invested bank to 20 percent, with the proviso that the equity share of total foreign investment be lower 
than 25 percent.  Moreover, China further limits this  type of investment to no more than two existing 
Chinese-invested banks for any given foreign investor .  During last year’s transitional review before 
this Committee, China claimed that the issue of fo reign equity participati on was related to mergers 
and acquisitions and therefore outside the scope of its GATS commitments.  However, China’s GATS 
Schedule provides that "foreign financial institutions  who meet the following conditions are permitted 
to establish a Chinese-foreign joint ba nk or a Chinese-foreign joint fi nance company in China:  total 
assets of more than US $10 billion at the end of the year prior to filing the application".  There is no 
inclusion of a limitation on the equity share allowed to a foreign investor or on the number of banks in 
which a foreign investor can invest.   
(a) Is the United States’ understanding of China’s policy correct?  Please explain. 
(b) Please provide the basis under Chinese law for this policy. 
(c) When will China remove the above-described equity restrictions to bring its policy 
into conformity with its GATS commitments? 
(d) Have there been any transactions in whic h the above-described equity restrictions 
have been exceeded?  If so, please describe them.  
14. At last year’s transitional review before th e Committee, on the issue of capital requirements 
for commercial banks, China noted that it imposes different operating capital requirements for each 
bank branch based on that branch’s business scope a nd clients.  The United States continues to be 
concerned that additional capital requirements on internal branches are high and imposed in a non-
transparent manner.   
(a) Are the criteria for calculating branch capital requirements the same for domestic and 
foreign-affiliated institutions?  Please explain.  S/FIN/W/61 
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  (b) Are the criteria for capital requirements pr omulgated in a public manner?  Please 
explain. 
(c) What is the status of the review of these capital requirements by CBRC? 
15. In the GATS Schedule accompanying its Protoc ol of Accession, China committed to allow 
unrestricted market access and national treatment for "payments and money transmission services, 
including credit, charge, and debit cards", with this  commitment becoming effective with regard to the 
RMB business of retail clients no later than 11 December 2006.  China also committed to allow 
unrestricted market access and national treatment for "advisory, intermediation, and other auxiliary 
financial services" for other financial services listed in its schedule, including payments.  
China’s GATS Schedule further provides for open mark et access for the "provision and transfer of 
financial information, and financial data processing by supplier[s] of other financial services".  At last 
year’s transitional review before this Committ ee, China seemed to suggest that the services under 
discussion were "settlement and clearing services for financial assets" and noted that China did not 
have GATS commitments in this area.  The view that electronic payment and related services are a form of securities settlement, however, runs counter  to the general understanding of the definitions 
contained in the GATS Annex on Financial Services. 
(a) Please explain the steps that China is taking to ensure that all its commitments in the 
electronic payments and related sectors are met.  How will China ensure that foreign 
electronic payment providers can process electronic payment transactions in China? 
(b) How will China ensure that foreign financia l institutions can issue the payment cards 
of their choice (whether Chinese-, foreign- or  co-branded) for domestic transactions?   
III. SECURITIES AND RELATED SERVICES 
16. The United States remains concerned that China may be planning to impose an equity cap on 
foreign credit rating agencies.  At last year’s tran sitional review before this Committee, China stated 
that it does not have GATS commitments for credit re ference and analysis, investment and portfolio 
research and advice agencies.  However, the United States notes that China made commitments in the 
GATS Schedule accompanying its Protocol of Accessi on with regard to advisory, intermediation and 
other auxiliary financial services without scheduli ng any limitations on foreign ownership.  Taking 
into account that the general understanding of what such commitments cover includes credit reference 
and analysis, investment and portfolio research  and advice, and advice on acquisitions and on 
corporate restructuring and strategy, please confirm that China does not plan either formally or informally to impose any equity limitations for credit rating services. 
17. The China Securities Regulatory Commission (CSRC) has imposed a moratorium on sales of 
existing state-owned securities companies to forei gn entities and on providing new securities licenses, 
including for foreign joint ventures.  The U.S. notes that China made certain commitments in the 
GATS Schedule accompanying its Protocol of Accessi on with regard to securities services.  Please 
explain how China justifies such restrictions in light of its commitments under the GATS and 
China’s plans for ending such moratorium. 
18. Please describe CSRC’s policy with regard to  circulating proposed measures and providing 
opportunities for public comment.  Recent rules have only allowed a period of 7 days for comment, 
which is insufficient to allow interested parti es to thoroughly review and comment.  Please also 
explain how CSRC coordinates with other Chinese regulators when proposed measures involve more than one regulator. S/FIN/W/61 
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  19. China’s rules governing mergers and acquisitions  (M&A) provide some much needed clarity 
on the procedures to be followed when foreign firm s enter into M&A transactions.  However, these 
rules have also raised concerns.  For example, there are broad review criteria, such as national 
economic security and potential loss of control over lo cal brand names, which can be used to decide 
whether a merger or acquisition should be appr oved.  Can China explain how these new review 
criteria will be used in the financial services sector? 
IV. FINANCIAL INFORMATION SERVICES 
20. As the United States explained in questions that  it submitted in connection with last year’s 
transitional review before this Committee, in paragraph 309 of the Working Party Report 
accompanying its Protocol of Accession, Chin a committed that "for the services included in 
China’s Schedule of Specific Commitments, relevant  regulatory authorities would be separate from, 
and not accountable to, any service suppliers they  regulated, except for courier and railway 
transportation services".  One of the services a ddressed in the Services Schedule accompanying 
China’s Protocol of Accession is the "provision and transfer of financial in formation, and financial 
data processing and related software  by suppliers of other financial services".  Nevertheless, Xinhua is 
both a major market competitor of, and the regulator of, foreign financial information service 
providers in China.  The United States re-submits  the following questions, to which China did not 
respond at last year’s transitional review before this Committee: 
(a) When will China implement this commitment and create an independent regulator in 
the financial information services sector? 
(b) Has China considered modelling an independent regulator in this sector after agencies 
such as the China Banking Regulatory Commission or the China Securities 
Regulatory Commission? 
21. On 10 September 2006, Xinhua issued the Administrative Measures on News and Information 
Release by Foreign News Agencies within China .  This measure abolished the Measures for 
Administering the Release of Economic Information in China by Foreign News Agencies and Their 
Information Subsidiaries , which had been issued on 15 April 1996.  Among other things, under 
the 2006 measure, Xinhua precludes foreign provide rs of financial information services from 
contracting directly with or providing financia l information services directly to domestic Chinese 
clients.  Instead, the 2006 measure directs foreign financial information servi ce providers to operate 
through a Xinhua-designated agent.  The one agent d esignated to date is a Xinhua affiliate.  These 
new restrictions do not apply to domestic financia l information service providers and, in addition, 
contrast with the rights previously enjoyed by fore ign information service providers since the issuance 
of the 1996 measure, well before China’s accession to the WTO on 11 December 2001.  Under the 1996 measure, foreign information service providers had the right to contract directly with and provide financial information services directly to dom estic Chinese clients, subject to an application 
and approval process administered by Xinhua.  
22. In connection with last year’s transitional re view before this Committee, the United States 
asked several questions about th e WTO-consistency of the 2006 measure.  However, China only 
responded summarily that the 2006 measure was WTO-c onsistent.  The United States asks that China 
respond in connection with this y ear’s transitional review to the specific questions raised below. 
(a) Is China currently enforcing the 2006 measure?  If not, has Xinhua nevertheless 
imposed any of the requirements of the 2006 measure through other means?  Please 
explain.  S/FIN/W/61 
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  (b) Please explain how China justifies the 2006 measure’s restrictions on the market 
access of foreign financial information service providers in light of China’s commitment to remove market access lim itations relating to the "provision and 
transfer of financial information, and fi nancial data processing and related software 
by suppliers of other financial servi ces" upon China’s accession to the WTO. 
(c) Please explain how China justifies the 2006 measure’s imposition of restrictions on 
the market access of foreign but not domestic  financial information service providers 
in light of China’s commitmen t to remove national treatment limitations relating to 
the "provision and transfer of financial in formation, and financial data processing and 
related software by suppliers of othe r financial services" upon China’s accession to 
the WTO. 
(d) Please explain how China justifies the 2006 measure’s new restrictions on market 
access and national treatment in light pf th e horizontal "acquired rights" commitment 
that China made in the GATS Schedule accompanying its Protocol of Accession. 
V. PENSIONS  
23. The United States seeks further clarification re garding the application and approval processes 
for providers of “enterprise annuities” services.  In this regard, the United States understands that the 
Ministry of Labour and Social Security (MOLSS)  recently re-opened its application process for 
enterprise annuities licenses. 
(a) Please describe how China will maintain  a level playing field among domestic and 
foreign banks, securities firms, asset management companies and insurers in the 
application and approval process.  
(b) Please confirm that that review by functional regulators (CIRC, CBRC, CSRC) will 
not hold up application under MOLSS licensing procedures.  
(c) Please confirm that MOLSS licensing procedures will enable foreign and domestic 
companies to apply and be approved for a license covering an integrated package of 
enterprise annuities services.  
VI. TRANSPARENCY 
24. In China’s Protocol of Accession and accompanying Working Party Report, Members 
recognized the overriding importance of transparency through a host of provisions.  Since China’s WTO accession, China has made notable im provements in the transparency of its trade 
regime, particularly through the many notifications  that it has made to the WTO’s councils and 
committees as well as through its use of numerous offi cial journals, other publications and the Internet 
to publicize new or modified trade-related laws, re gulations and other measure s.  Nevertheless, there 
remains much to be done to further improve transpar ency in China, as China itself has acknowledged.  
Transparency is a critically important area, both from a governmental perspective and from a business perspective.   
In Section 2 (c) of its Protocol of Accession, Chin a specifically committed to establish or designate an 
official journal dedicated to the publicati on of all trade related measures, including, inter alia , 
"all laws, regulations and other measures pertaining to or affecting trade in services".  The term "laws, 
regulations and other measures" is  defined broadly as "laws, regula tions and other measures of the 
central government as well as local regulations, rul es and other measures issued or applied at the sub-
national level".   S/FIN/W/61 
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  25. During past transitional reviews, China has stat ed that its official journal was the "China 
Foreign Trade and Economic Coope ration Gazette", now published by the Ministry of Commerce 
(MOFCOM) and known as the MOFCOM Gazette.  Until March 2006, howev er, only trade-related 
measures issued by MOFCOM, either on its own or jointly with other ministries or agencies, were 
published in the MOFCOM Gazette; trade-related m easures issued by other ministries and agencies 
were not published in the MOFCOM Gazette.  In March 2006, China’s State Council issued a notice 
directing all central, provincial and local government  entities to begin sending copies of all of their 
trade related measures to MOFCOM for i mmediate publication in its Gazette.   
(a) During last year’s transitional review befo re this Committee, China did not report on 
this issue as had been requested.  Pl ease provide an update on the progress being 
made by central, provincial and local government entities in fulfilling the State 
Council’s directive to send measures pertaining to or affecting trade in financial services to MOFCOM for publication in th e MOFCOM Gazette.  As part of that 
update, please identify the government entities that regularly send their services measures to MOFCOM for publication in the MOFCOM Gazette.  Please also 
describe the types of financial services m easures (e.g., laws, regulations, rules, 
measures, notices, decisions, etc.) regularly being sent to MOFCOM for publication in the MOFCOM Gazette.   
(b) With regard to measures pertaining to or affecting trade in financial services, please 
describe any progress that China has made dur ing the past year in implementing the 
commitment that it made in Section 2 (c) of its Protocol of Accession to provide a 
reasonable period for public comment on new or modified measures before 
implementing them, except in certain specified instances.   
 
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