RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/W/45 
23 August 2005 
 (05-3720) 
Committee on Trade in Financial Services  Original:   English 
  
 
 
COMMUNICATION FROM THE UNITED STATES 
 
Transitional Review Mechanism in connection with Paragraph 18 of 
 
the Protocol on the Accession of the People's Republic of China  
 
 
 The following communication, dated 19 Augus t 2005, 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  
 
 
 A. I
NSURANCE  
1. Currently, the most important issue for many established and operating foreign insurers in 
China is the ability to grow their business geographica lly through branch and sub-branch expansion.  
Key questions and concerns include the number of branches that a company can apply for at any one 
time and whether approvals will be on a consecutive or  concurrent basis, how and by whom will sub-
branch approvals be handled a nd whether approvals of sub-branches in a province will be on a 
consecutive or concurrent basis once an initial provi ncial branch has been established, and whether 
China will permit Property and Casualty insurers to adopt the internationally accepted branch/sub-
branch structure.  In connection with last year’s  TRM meeting for this Committee, the United States 
asked several questions relating to branch and sub-branch establishment and approvals, particularly in 
connection with the issuance of the Regulations on the Administration of Insurance Companies and 
the Implementing Rules for the Regulation on the Administration of Foreign-Invested Insurance 
Companies by China’s Insurance Regulatory Commissi on (CIRC) on 13 May 2004.  China provided 
informative responses to many of these questions.  At  this time, the United States seeks clarifications 
with regard to the responses to some of its earlier questions.   
(a) The United States understands that existing branches and other existing non-life 
insurer operations may, but are not requi red to, continue to operate under the 
conditions existing, and pursuant to the approva ls granted, prior to the recently issued 
regulations and implementing rules, includi ng with regard to op erations, financial 
structure, capital and mode of establishment.  Is that correct?  If not, please explain. 
(b) The United States understands that Chin a will allow non-life insurers already 
established in China (whether as a branch or otherwise) to open branches and sub-branches even if they do not first establish as a subsidiary.  Is that correct?  Are there 
any limitations on this right?  Please explain. S/FIN/W/45 
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 (c) In practice, it continues to appear that br anch approvals for foreign insurers are being 
granted consecutively (meaning one at a ti me) rather than concurrently (meaning 
more than one at a time), while established and start-up Chinese insurers are able to receive concurrent approvals to open multiple  branches.  The practice of refusing to 
approve multiple branch appli cations on a concurrent basis is contrary to international 
practice, impedes competition and therefore impairs consumer welfare, and is unfair 
to new market entrants.   Please explai n how China continues to justify this 
differential treatment in light of China’s WTO national treatment commitments. 
(d) Please confirm that the RMB 200 million capital requirement for initial 
establishment, whether as a subsidiary or a branch,  includes the right to establish 
sub-branches without limitation on number s and without having to satisfy any 
additional capital requirements. 
(e) Please explain the rationale for requiring additional capital of RMB 20 million for 
each additional branch, particularly in light of the fact that any additional branches 
would still be backed by the full asset base of the parent foreign insurer. 
2. In December 2004, CIRC allowed foreign companies the opportunity to provide comments on 
the Insurance Law that was under revision.  Please expl ain the status of China’s review of the draft 
Insurance Law and the plans for implementa tion of any revisions to this draft. 
3. In the Services Schedule accompanying its Pr otocol of Accession, China committed to open 
its group life, health, pension and annuity market to  international participation by 11 December 2004.  
Please indicate when CIRC will issue implementing guidelines for foreign insurers interested in 
providing group life coverage.  Will these guidelin es specify what entities are covered under group 
life “master contract coverage”?  Will these guide lines describe how and under what circumstances 
insurers may qualify to provide group “master contract coverage”? 
4. At present, is CIRC reviewing, or planning to re view, its regulations to determine whether to 
allow a portion of insurance companies' assets to  be invested abroad?  If so, please describe the 
review and indicate whether input will be sought from foreign insurance companies. 
5. CIRC’s Provisional Measures on the Administration of the Overseas Utilization of Insurance 
Foreign Exchange Funds , issued on 9 August 2004, establish a qualifying threshold (e.g., total assets 
of RMB 5 billion) for insurers to be able to inv est their foreign exchange funds in overseas funds or 
equities.  Even though this limitation applies to both domestic and foreign in surers, in practice, only 
the very largest insurers, i.e., domestic companies,  will have the level of assets necessary to qualify 
for this access to overseas funds or equities.  Fore ign-invested insurers invariably will not qualify 
unless CIRC recognizes the assets of the parent foreign insurer when determining the asset level of a foreign-invested insurer.  Given the disproportiona te impact of this limitation on foreign-invested 
insurers, please justify this differential treatment  in light of China’s WTO national treatment 
commitments.  
6. 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 eight years are permitted to apply to establis h an insurance asset management company.  It 
appears that this provision applies only to insurers  that have been operating in China for those eight 
years, which would exclude all foreign insure rs entering China’s market since China’s WTO 
accession on 11 December 2001.  China has previously stated that this limitation applies to both 
domestic and foreign insurers.  Nevertheless, given the disproportionate impact of this limitation on 
foreign insurers, please justify this differential tr eatment in light of Chin a’s WTO national treatment 
commitments.   S/FIN/W/45 
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 B. BANKING  
7. Pursuant to the Regulations on the Administrati on of Foreign-Invested Financial Institutions 
and the Detailed Implementing Rules for the Regulati ons on the Administration of Foreign-Invested 
Financial Institutions, issued by the People’s Ba nk of China (effective 1 February 2002), China 
imposes minimum capital requirements for foreign ba nks, on a branch-by-branch basis, that remain 
extremely high by international standards.  Previously, China has explained that, with the 
improvement of the risk management system of  foreign banks and the development of China’s 
regulatory framework, the China Banking Regulator y Commission (CBRC) would relax the minimum 
capital requirements for foreign banks accordingly.    
(a) What progress has CBRC made in introducing a risk-based management system, 
which could permit CBRC to change the rules on capital requirements (and 
limitations on product scope) for better capita lized domestic or foreign-invested firms 
with proven risk management systems?   
(b) What is the current status of CBRC’s over all review of the capital requirements for 
foreign banks? 
8. Under banking services in the Services Schedul e accompanying its Protocol of Accession, 
China agreed that qualified foreign financial ins titutions were permitted to establish Chinese-foreign 
joint banks, and China did not schedule any limitation on the percentage of fore ign ownership in these 
banks.  China also made a “horizontal” commitmen t in which it accepted that “[t]he proportion of 
foreign investment in an equity joint venture sha ll be no less than 25 percent of the registered capital 
of the joint venture.”  Previously, China explaine d that, in line with the development of China's 
banking sector, China was gradually relaxing the restriction on the fo reign equity share in existing 
domestic banks.  China further explained that, at th e end of 2003, it had increased the equity share of 
a single foreign investor to 20 percent, provided that the equity share of the total foreign investment in 
a financial institution was lower than 25 percent.   
(a) In light of the banking sector commitment that China made in its Services Schedule, 
please justify China’s limitation on foreign ow nership in Chinese-foreign joint banks. 
(b) In light of the “horizontal” commitment th at China made in its Services Schedule, 
please justify China’s limitation on foreign ow nership in Chinese-foreign joint banks. 
C. SECURITIES  
9. Under rules issued by the China Securities Regulatory Commission (CSRC) addressing joint 
venture asset management companies, foreign firms must have at least RMB 300 million of capital to 
qualify as a joint venture partner.  This amount is significantly higher than in any other country, as 
other countries recognize that asset management firms do not need capital reserves to protect 
investors.  This high capital requirement impe des market access for foreign firms.  Is China 
considering modifications to these rules?  If so, wh en does CSRC plan on circulating a draft of the 
revised rules for public comment? 
10. How many foreign securities institutions have signed up as 33 percent joint-venture partners 
“to engage (without Chinese intermediary) in unde rwriting A shares and in underwriting and trading 
of B and H shares as well as government and cor porate debts, launching of funds” since China's 
accession to the WTO?  Of those joint ventures lic ensed, how much capital did the foreign securities 
institutions bring into the joint-venture?  What ki nd of business have the joint ventures been able to 
participate in?  For example, can they effectively underwrite A shares without trading them? S/FIN/W/45 
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 11. Do the Chinese regulatory authorities intend to allow foreign-invested securities firm to 
engage in the full range of securities services in  the future?   If so, how will these reforms be 
introduced? 
D. P
ENSIONS  
12. The application and approval processes for Chin a's “enterprise annuity” program seem to be 
cumbersome.  Please explain the application and approval process for enterprise annuities.   
13. In order to offer pension annuities services, banks, securities firms, asset management 
companies and insurers must apply with thei r appropriate sectoral regulator (CSRC, CBRC and 
CIRC) as well as with the Ministry of Labor and Social Security (MOLSS).   Please describe how 
China will maintain a level playing field among ba nks, securities firms, asset management companies 
and insurers in the application and approval process,  given that an applicant must first secure approval 
from its appropriate financial services regulatory bo dy before securing approval from the Ministry of 
Labor and Social Security. 
14. Please report on the current licensing of compan ies to offer enterprise annuities services, 
including numbers of domestic and foreign compan ies applying and licensed to offer these services. 
15. MOLSS has reportedly stopped accepting applica tions for enterprise pension funds.  
Although MOLSS has indicated that there will be future  application tranches, it has not identified the 
date when applications will again be accepted, nor  has it explained how long a window there will be 
for submitting applications. 
(a) Please identify the dates when applications for enterprise pension funds will again be 
accepted by MOLSS.   
(b) Has China considered instituting a rollin g application process?  Please explain. 
E. FINANCIAL INFORMATION  
16. In paragraph 309 of the Working Party Report accompanying its Protocol of Accession, 
China committed that “for the services include d 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 tran sportation services.”  One of the services addressed 
in the Services Schedule accompanying China’s Prot ocol of Accession is the “provision and transfer 
of financial information, and fi nancial 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. 
(a) When will China implement this commitment and create an independent regulator in 
the financial information services sector? 
(b) Has China considered modeling an independent regulator in this sector after CIRC, 
CBRC or CSRC? 
(c) Does China intend to circulate for public comment proposed regulations creating an 
independent regulator in the fina ncial information services sector?  
 
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