Starting January 1 of this year, China liberalized three types of financial services on better terms than its World Trade Organization commitments, pursuant to the Mainland/Hong Kong Closer Economic Partnership Arrangement (Cepa).
Under Cepa, the total asset requirement for the establishment, by qualifying Hong Kong banks and finance companies, of a foreign-invested bank or finance company has been reduced to $6 billion. This will allow more Hong Kong banks and finance companies to establish a presence in China.
Cepa does not require foreign financial institutions that wish to set up a joint-venture bank or finance company in China to first establish a representative office in China. But foreign banks must still maintain a representative office in China before establishing their first branch.
Under Cepa, Chinese branches of qualifying Hong Kong banks only need to have a two-year track record of business operations before they are able to engage in renminbi business. Moreover, when evaluating the profitability of these branches, Cepa provides that the assessment will be made on the basis of the overall profitability of all branches instead of on the profitability of individual branches.
This should, at least in theory, ease the way for the Chinese branches of qualifying Hong Kong banks to engage in RMB business in China.
Cepa allows Hong Kong permanent residents who have been licensed by the Securities and Futures Commission of Hong Kong to acquire Chinese securities and futures industry qualifications by undertaking training and passing examinations on Chinese laws and regulations. They are not required to undertake an examination on professional knowledge.
Under Cepa, the maximum equity interest that a single shareholder may acquire in a domestic PRC insurance company has been increased to 24.9%.
Cepa provides qualifying Hong Kong insurance companies with greater flexibility to establish a presence in the Chinese insurance market by effectively permitting these companies to enter the PRC insurance market through re-grouping and strategic mergers. Meanwhile:
- the entire group's total assets must be at least $5 billion;
- one of the qualifying Hong Kong insurance companies within the group must have more than 30 years' of experience and have had a representative office in China for at least two consecutive years.
Carson Wen and Olivia Tong