RESTRICTED  WORLD TRADE  
ORGANIZATION  S/FIN/W/53 
18 October 2006 
 
 (06-5026) 
Committee on Trade in Financial Services Original:   English 
  
 
COMMUNICATION FROM THE UNITED STATES 
 
Transitional Review Mechanism Pursuant to Paragraph 18 of the Protocol of 
 
Accession of the People's Republic of China ("China")  
 
 
  The following communication, dated 16 Oc tober 2006, from the delegation of the 
United States is being circulated to the Member s of the Committee on Trade in Financial Services. 
 
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Questions from the United States to China
 
concerning Financial Services  
 I. INSURANCE SERVICES 
1. The United States understands that insurance co mpanies operating in China at the time of 
WTO accession may, but are not required to, continue  to operate under the conditions existing, and 
pursuant to the approvals granted, prior to more re cently issued regulations and implementing rules, 
including with regard to form of establishment, ope rations, financial structure and capital.  Is that 
correct?  If not, please explain how any divergence from this policy would be consistent with China's 
WTO obligations?   
2. The United States notes that China's commitments  for non-life insurance provide companies 
the freedom of choice to establish as branches, subs idiaries or joint ventures.  The United States 
believes that all such companies should have th e same rights of intern al expansion (additional 
branches or sub-branches) in China, irrespective of  their initial form of establishment.  We are 
concerned that China may be somehow viewing th e initial branch structure differently than a 
company established as a subsidiary. 
3. Some insurance companies that  initially established as a branch may be interested in 
converting such branch to a subsidiary.  Howeve r, such companies have been encountering long 
delays while the China Insurance Regulatory Commission (CIRC) and other Chinese government 
agencies review their conversion applications.  W ithout these approvals, such insurers cannot expand 
internally.  CIRC's own regulations (the Notice C oncerning Issues Relating to Conversion, issued in 
December 2005) require the CIRC approval process to be  completed within two months of receiving a 
formal request.   
(a) Why is CIRC not adhering to its own regulations, including the two-month time 
frame for approving conversion applications?   
(b) Please explain CIRC's plans to work with other agencies to expedite the conversion 
approval process.  S/FIN/W/53 
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  4. The United States understands that China will a llow 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 ther e any limitations on this right?  If so, please explain 
how China justifies this treatment in  light of China's WTO commitments. 
5. The United States remains concerned that China appears to grant internal expansion (branch 
and sub-branch) approvals for foreign insurers c onsecutively (meaning one at a time) 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 mu ltiple branches and sub-branches.  Please explain how 
China justifies this treatment in light of  China's WTO national treatment commitments. 
6. The United States understands that for fo reign insurance providers, China requires 
RMB 200 million registered capital for initial establishment either as a branch or subsidiary.  It is also 
our understanding that for those companies that have  chosen to establish as a branch, China requires 
RMB 200 million in registered capital for each additi onal sub-branch, and, for those companies that 
have established as a subsidiary, China requires an additional RMB 20 million in registered capital for 
each location (or branch) of that subsidiary until total registered capital for the company reaches 
RMB 500 million.   
(a) What is the prudential basis for these capitalization requirements?  
(b) Please explain why it would not be possible for CIRC to rely on the financial reserves 
of the parent company in the case of firm s establishing as a branch, and of the initial 
subsidiary in the case of firms establishing as a subsidiary. 
(c) Please provide information on any plans to remove or modify these capitalization 
requirements.  
7. Companies supplying non-life insurance have  reported problems obtaining approval to 
introduce certain products, for example, political risk insurance.  This had led some to observe that 
CIRC has delayed approving such ap plications because it wants to pr ovide a competitive edge to a 
state-owned company that is already providing such  products.  Please explain how China justifies this 
inaction in light of its WTO commitments, including those on national treatment.   
8. With regard to the reinsurance sector, the United States is concerned that the 2005 
Regulations on the Administration of Insurance Busin ess give domestically admitted reinsurers a right 
of first bid for 50 per cent of a foreign direct insurance company's reinsu rance business.  These 
regulations also seem to place limitations on the ability of a foreign direct insu rer to cede insurance to 
a parent or affiliate company.  The United States not es that China agreed as part of its WTO accession 
commitments to phase out limitations applying to th e reinsurance sector.  We understand that China's 
position is that these regulations do not impose a re quirement that direct insurance companies have 
their business reinsured in China, do not restrict cross-border reinsurance service, and will not have 
any substantial impact on the reinsurance business conducted by foreign insurance companies within 
China.  Is that correct?  If not, please explain how  China plans to implement these regulations in a 
manner consistent with China's WTO obligations.   
9. There are reports that the Chinese government is  considering injecting additional capital into 
the China Reinsurance Company as part of a broade r effort to improve its competitiveness against 
international reinsurers.    
(a) Please describe China's plans in this area.  In addition, please specify the operations 
of China Reinsurance which would receive th is additional capital.  The United States  S/FIN/W/53 
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  understands that China Reinsurance is a holding company with at least three 
subsidiaries.   
(b) Please explain how implementing this capita l infusion would be consistent with 
China's WTO obligations, including t hose relating to national treatment. 
10. CIRC recently issued the Measures on  Administration of Chinese Representative Offices of 
Foreign Insurance Institutions .  Article 18 of that measure impos es a number of one rous 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 themselves 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.  These requirements seem to go beyond what is needed for prudential 
reasons. What is China's rationale for these requirements?   
11. CIRC's Provisional Measures on the Administration of the Overseas Utilization of Insurance 
Foreign Exchange Funds , issued in August 2004, establish a qualifying threshold (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 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 such treatment unless, as we have requested, CIRC recognizes the assets of the parent foreign 
insurer when determining the asset level of a foreign- invested insurer.  Please justify this differential 
treatment in light of China's WTO commitments. 
12. In June 2005, CIRC announced that local insura nce companies would be allowed to invest 
their foreign currency in stocks listed on exchanges of "mature" markets overseas.  Initially, insurance 
companies would only be allowed to invest in Chin ese companies listed abroad, but this restriction 
could be relaxed later, according to regulators.  Insurers would be required to cap investments in 
overseas shares at 10 per cent of the total foreign- exchange investment quota already allotted by 
regulators.  Insurers must also limit their investme nts in a single company to 5 per cent of its total 
stock.   
(a) Does this rule apply only to wholly-Chinese owned companies?  If so, why?   
(b) If foreign-invested insurers have foreign exch ange assets, may they invest similarly?  
If not, please justify the differential treatment in light of China's WTO commitments. 
(c) China has announced plans for reviewing its policies regarding overseas investments. 
Does China plan to relax its cap on invest ment in overseas shares?  Does China plan 
to allow investments in companies othe r than Chinese compan ies listed abroad? 
(d) Does China plan to still limit investments in  a single company to 5 percent of its total 
stock?  
13. Pursuant to Article 8 of CIRC's Interim Regulations for Insurance Assets Management 
Companies , which because effective on 1 June 2004, only insurers that have held licenses for more 
than 8 years are permitted to apply to establish a nd 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  both domestic and foreign insurers.  Nevertheless, 
given the disproportionate impact of this limitati on on foreign insurers, please justify this differential 
treatment in light of China's WT O national treatment commitments. S/FIN/W/53 
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  14. Could China please clarify its views on whether foreign insurance companies would in any 
circumstances be required to outsource asset mana gement to local asset management companies?  
Could China also clarify whether a decision not to outsource might affect insurance companies' choice 
of investment options? 
15. In December 2004, CIRC allowed foreign comp anies to provide comments on the proposed 
revisions to the Insurance Law.  Please report on th e status of CIRC's review of the Insurance Law 
and plans for implementation of any revisions. 
II. BANKING AND RELATED SERVICES 
16. In the Services Schedule accompanying its Pr otocol 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.   
(a) What is the view of the Chinese Governme nt regarding the recent proposal by the 
China Banking Reform Commission (CBRC) th at would require foreign banks to 
incorporate in order to enter the retail  RMB business?  If China is considering 
enacting this proposal, please explain how th is would be consistent with China's 
Services Schedule after 11 December 2006. 
(b) We understand that China is considering establishing a deposit insurance system.  
Can you update us on the status of this effort and on how foreign bank branches 
would participate?  Please confirm that in  any case foreign banks would still be able 
to take uninsured deposits.  We also unde rstand that in current draft banking 
regulations deposits under RMB 1 million are defined as retail deposits.  This amount 
seems unusually large, relative to both China's deposit structure and what we understand to be the level be ing considered for coverage  by the deposit insurance 
system (i.e., RMB 100,000). We would like to know if there are plans to review this definition of retail deposit.     
(c) Please also clarify how the CBRC proposal mentioned above would affect retail 
lending from foreign branches and how that  would be consistent with China's 
Services Schedule after December 2006?  
17. At last year's transitional review before this  Committee, China stated "that in general there 
was no limitation on the share of foreign banks in financial institutions."  However, it is widely 
understood that China currently maintains a polic y limiting the equity share of a single foreign 
investor in a Chinese-foreign joint venture bank to 20  per cent, with the proviso that the equity share 
of the total foreign investment be lower than 25 per cent. China further limits this type of investment 
to no more than two existing state-owned companies for any given investor.   
(a) Could China clarify this policy and cite examples of acquisitions in excess of the 
limits described above?   
(b) Please provide the basis under Chinese law for this policy. 
(c) How does China reconcile this policy with the fact that, under the banking services 
section in the Services Schedule accompanying its Protocol of Accession, China committed that qualified foreign financial in stitutions would be permitted to establish 
Chinese-foreign joint banks, and China did not schedule any limitation on the percentage of foreign ownership in these banks?   S/FIN/W/53 
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  18. The United States appreciates the responses provide d at last year's transitional review of 
China before this Committee with regard to Chin a's capital requirements for establishing commercial 
banks in China.  The United States continues to be concerned, however, because China imposes 
additional capital requirements on internal branches, on a branch-by-branch basis, that are extremely 
high.   
(a) What is the rationale for having such high capital requirements for internal branches 
of existing banks?  
(b) What is the status of the review of these capital requirements by CBRC? 
19. In the Services Schedule accompanying its Prot ocol of Accession, China committed to lift by 
11 December 2006 any remaining non-prudential me asures restricting ownership, operation and 
juridical form of foreign financial institutions, in cluding with regard to internal branching and 
licenses.  What preparations has China made for th e removal of remaining non-prudential measures?   
20. In the Services Schedule accompanying its Prot ocol 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 
Services Schedule further provides for open market acce ss for the "provision and transfer of financial 
information, and financial data processing ... by s upplier[s] of other financial services."  Nonetheless, 
certain officials at the People's Ba nk of China (PBOC) have stated th at they support the proposal that 
China Union Pay be designated as a monopoly provider of electronic payment services for Chinese 
consumers, and that no other electronic paymen t providers be able to enter this market. 
(a) What is the view of the Chinese Governme nt regarding this proposal?  If China is 
considering enacting this proposal, please expl ain how this would be consistent with 
China's Services Schedule after 11 December 2006.  
(b) Please explain the steps that China is taking to ensure that all its commitments in the 
electronic payments and related sectors are met.  For example, how will China ensure 
that international electronic payment pr oviders can process domestic electronic 
payment transactions in China? 
(c) 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?   
(d) How will China ensure that financial institu tions are able to issue foreign electronic 
payment cards for international transactions? 
21. The United States understands that China is c onsidering requiring all financial institutions 
that issue electronic payments cards to adopt the Bank Identification Number (BIN) format of China 
Union Pay on all cards.  However, if mandated, th is requirement would have the effect of forcing 
other brands of payments cards out of the market , including the dual-brand, dual currency cards that 
are currently issued in China.  Please explain how  a requirement that foreign financial institutions 
adopt the CUP BIN format would satisfy China's WTO obligations. S/FIN/W/53 
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  III. SECURITIES AND RELATED SERVICES 
22. China made commitments in the Services Sche dule accompanying its Protocol of Accession 
with regard to advisory, interm ediation and other auxiliary financ ial services without scheduling any 
limitations on foreign ownership.  Taking into  account that these commitments include credit 
reference and analysis, investment and portfolio research and advice, and a dvice on acquisitions and 
on corporate restructuring and strategy, please e xplain how China justifies proposing a 49-percent 
foreign equity cap for credit rating agencies. 
23. The China Securities Review Commission (CS RC) has reportedly imposed an informal 
moratorium on sales of existing state-owned securities companies to foreign entities.  However, while 
China made commitments in the Services Sche dule accompanying its Protocol of Accession with 
regard to securities services, it did not schedule an y national treatment limitations.  Please explain the 
nature of this moratorium, whether it is consiste nt with China's WTO oblig ations and China's plans 
for ending the moratorium. 
24. In mid-September, the CSRC announced that it was imposing an official moratorium on 
providing new securities licenses, including for forei gn joint ventures.  Please advise when this 
moratorium will be lifted, since its imposition ef fectively denies foreign entry into the securities 
industry. 
25. Does China have any plans for bringing its  capital requirements for fund management 
companies into line with those found in  other WTO Members?  Please explain. 
26. Please describe CSRC's policy with regard to circulating proposed measures and providing 
opportunities for public comment.  Please also expl ain how CSRC coordinates with other Chinese 
regulators when proposed measures involve more than one regulator, as is the case with qualified 
domestic institutional investor (QDII) rules. 
27. China's new rules governing mergers and acqui sitions (M&A) provide some much needed 
clarity on the procedures to be followed when fore ign firms 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? 
28. Earlier this year, China announced the la unch of a QDII program permitting commercial 
banks to pool RMB from domestic institutional and i ndividual investors into foreign exchange for 
investment overseas.  When does China plan to  implement similar rules for securities firms? 
29. The United States urges China to  increase the permitted share of foreign investment in asset 
management companies beyond 49 percent.  Coul d China please inform us of any such plans?  
30. The United States urges China to increase the permitted share of foreign investment in 
brokerage companies beyond 33 percent and allow th ese foreign-invested companies to trade in "A 
Shares".  Could China please explain whether it has any such plans? 
31. Is China considering permitting securities firms to engage in the domestic derivatives markets 
to the same extent as banks?  If so, what  is China's timetable?  If not, why not?  S/FIN/W/53 
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  IV. FINANCIAL INFORMATION SERVICES 
32. 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, China comm itted that "for the services included in China's 
Schedule of Specific Commitments, relevant regulat ory authorities would be separate from, and not 
accountable to, any service suppliers they regulate d, except for courier and railway transportation 
services."  One of the services addressed in the Se rvices Schedule accompanying China's Protocol of 
Accession is the "provision and transfer of financ ial information, and fina ncial data processing and 
related software by suppliers of other financia l services."  Nevertheless, Xinhua is both a major 
market competitor of, and the regulator of, foreign fi nancial 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 CIRC, 
CBRC or CSRC? 
33. 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 now precludes foreign provide rs of financial information services from 
contracting directly with or providing financia l information services directly to domestic Chinese 
clients.  Instead, foreign financial information ser vice providers must now 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 financial information service provi ders and, in addition, contrast with the rights 
previously enjoyed by foreign information service providers since the issuance of the 1996 measure, 
well before China's accession to the WTO on 11 De cember 2001.  Under the 1996 measure, foreign 
information service providers had the right to contr act directly with and provi de financial information 
services directly to domestic Chinese clients, subject to an application and approval process 
administered by Xinhua.  
(a) 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 services"  upon China's accession to the WTO. 
(b) 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 commitment 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 other financial services" upon China's accession to 
the WTO. 
(c) 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 Services Schedule accompanying its Protocol of Accession. S/FIN/W/53 
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  (d) Is China currently enforcing the 2006 meas ure, or is it necessary for implementing 
rules to be issued before the 2006 measu re can be enforced?  Please explain. 
V. PENSIONS  
34. Please provide further details on the application and approval processes for "enterprise 
annuities."  In order to offer pension annuities ser vices, 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 regulat ory body before securing approval from MOLSS. 
35. 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. 
VI. TRANSPARENCY 
36. 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 
accession, China has made notable improvements 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 official journals, othe r publications and the Internet to publicize new or 
modified trade-related laws, regulations and other m easures.  Nevertheless, there remains much to be 
done to further improve transparency in China, as China itself has acknowledged.  Transparency is a 
critically important area, both from a governmental perspective and from a business perspective.   
37. In Section 2(C) of its Protocol of Accession, China specifically committed to establish or 
designate an official journal dedicated to the publication 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, regulations and other 
measures of the central government as well as local regulations, rules and other measures issued or 
applied at the sub-national level."   
38. 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 MOFCOM and known as the 
MOFCOM Gazette.  Until March 2006, however, only  trade-related measures issued by MOFCOM, 
either on its own or jointly with other ministri es or agencies, were published in the MOFCOM 
Gazette; trade-related measures issued by other mi nistries 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 sendi ng copies of all of their trade related measures 
to MOFCOM for immediate publication in its Gazette.   
(a) Please 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 
the MOFCOM Gazette.  As part of th at 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 measures 
(e.g., laws, regulations, rules, measures, no tices, decisions, etc.) regularly being sent 
to MOFCOM for publication in the MOFCOM Gazette.    S/FIN/W/53 
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  (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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