. /.  WORLD TRADE  
ORGANIZATION  RESTRICTED 
S/FIN/W/81 
13 October 2011  
 
(11-5040) 
Committee on Trade in Financial Services Original:   English 
  
 
COMMUNICATION FROM THE EUROPEAN UNION 
 
Transitional Review Mechanism pursuant to Paragraph 18 of 
the Protocol of Accession of the People’s Republic of China 
 
 
 The following communication, dated 12 Oc tober 2011, from the delegation of the 
European  Union, is being circulated to the Members of  the Committee on Trade in Financial Services.  
 
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Questions and Comments from the European  Union on the Implementation by China 
of its Commitments on Trade in Financial Services 
 
 
1. The EU recognizes and welcomes China's continuous efforts over the past ten years to 
implement its WTO commitments for financial ser vices and would like to encourage China to 
continue these efforts in particular as regards tr ansparency requirements.  The EU is transmitting 
comments and questions in advance of the meeting of the Committee on Trade in Financial Services 
on 31 October 2011, in order to allow the Chinese authorities sufficient time to provide a complete 
response. 
2. In accordance with paragraph 18 of the Protocol  on the Accession of the People's Republic of 
China, which states that "China shall provide releva nt information to each subsidiary body in advance 
of the review" and in order to ensure effectiv e review of the implementation by China of its 
commitments, the EU requests China to provide r esponses and relevant information to the following 
questions in advance of the meeting of the Counc il for Trade in Services in accordance with the 
paragraph 18 of the Protocol of Accession of China.  
3. The EU reserves its right to raise additiona l questions, upon receipt of responses to its 
questions and comments by China. 
4. China has a number of regulatory bodies with  conflicting and overlapping authority over 
various aspects of the banking sector.  In additi on, local entities within the regulatory authorities 
sometimes give inconsistent interpretations of the same regulation.  What are the steps that China is 
taking to streamline the regulatory oversight of the banking sector and ensure coordination and 
consistency among the different actors? 
5. Although China has implemented its commitment to transparency and notification contained 
in its Protocol of Accession, there still appear to be inconsistencies with regard  to the publication of 
all laws, policies and regulations and the provision of  adequate opportunity to interested parties to 
comment.  What steps is China taking in order to ensu re that regulation in the financial services sector 
is transparent and takes account of the views of the industry? S/FIN/W/81 
Page 2  
 
  6. 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?  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 classifica tion on the bank's business scope and regulatory 
obligations?  
7. 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; 
(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 presen ce 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? 
8. 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 how it envisages opening the market to foreign 
operators in order to comply with its GATS commitments? 
9. 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 speci fying where they should be located.  This draft 
appears to be different to the current policy cont ained in Article 13(5) of the Bank Card regulation 
and, though it is not officially in force, foreign banks are requested to relocate their data processing 
systems already creating de facto discrimination for fo reign banks.  In this re spect, could China please 
explain this policy change, which ca nnot be justified as a prudential me asure and is not in line with 
China's WTO commitments?  
10. On insurance, the geographical expansion of fore ign insurers is still hampered significantly by 
slow and unpredictable regional-le vel licensing processes, for example the administrative practice of 
accepting one application for a license for a single branch at a time, whereas Chinese insurers can 
apply for several licences simultaneously as can be seen from publicly available approved licences 
records.  As this is an issue that  has been ongoing for some time no w, the EU request China to clarify 
which steps it has taken to ensure equal treatment between domestic and forei gn insurers with regards 
to branch/sub-branch licensi ng and geographic expansion? 
 
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