China will adopt a series of policies and measures for ensuring the uniform policies on introducing foreign capital, Wei Jianguo, vice minister of Foreign Trade and Economic Cooperation, said at a conference in Hangzhou on June 3.

In exception of carrying on rectification of the current laws and regulations on foreign investment, China will speed up improvement on relevant policies, Wei said. Departments at all levels should henceforth keep in conformity with the state laws and rules when making rules and policies on introducing foreign capital. And all relevant rules and policies that should be publicized have to go into effect only after they are publicized so as to keep on the transparency of the policies.

China will keep the steady and continuity of policies on introducing foreign capital, optimize the foreign investment structure, and encourage foreigners to invest in high-tech industry, as well as open the service industry step by step, Wei said. In addition, China will also introduce foreign capital into the reorganization of state-owned enterprises, encourage foreigners to invest in central and west China, encourage foreign-capital enterprises to expand their export, develop China's relevant industries and attract foreign investment by way of purchase and merger.

As reported, China has made great achievement on making use of foreign capital since China's reform and opening up. Up to the end of last April, China had approved more than 390,000 foreign enterprises from over 180 countries and regions in the world to set up branches in China, of which more than 400 are among the world top 500 transnational corporations. And the foreign capital actually used has reached US$409.36 billion in China.

Source: Sinoprojects.com, 5/6/02

Foreign Investment in Securities Companies

China is about to reinforce legislation and policy planning for the securities fund industry to clear the way for foreign entry into the sector. While legislators are still viewing the Investment Fund Law, the government is set to decide on regulations to create a sound legal and policy environment to further the development of the fund industry and prepare for opening-up of the economy.

C0210002 The Rules for the Establishment of Securities Companies with Foreign Equity Participation Issued by the China Securities Regulatory Commission (CSRC) June 1, 2002. They will come into force on July 1, 2002.

Securities companies with foreign equity participation may engage in the following types of business:

1. Distribution of shares (including ordinary Renminbi shares and foreign-investment shares) and bonds (including government bonds and corporate bonds)
2. Brokerage of foreign-investment shares
3. Brokerage of, and dealing on one's own behalf in, bonds (including government bonds and corporate bonds)
4. Other business approved by the CSRC.

NB. "Foreign-investment shares" include foreign-investment shares listed in China (B shares) and foreign-investment shares listed abroad.

Foreign shareholders must make their capital contributions using a freely convertible currency. The ratio of the foreign shareholders' shareholding or the ratio of equity the foreign shareholders hold in a securities company with foreign equity participation may not exceed one third altogether (including direct holdings and indirect holdings).

The shareholders must pay in all of their capital contributions within six months of the date on which the CSRC approval documentation is issued.

In relation to this change, in the rules for security companies with foreign investment, Zhou Xiaochuan, chairman of the CSRC, has promised to push hard to enable qualified foreign institutional investors to enter China's stock market as soon as possible, in line with China's World Trade Organization commitment. Many domestic and foreign fund managers and securities companies are putting pressure on the authorities, hoping to secure the first joint venture license.

Supervision and Administration of Foreign Financial Institutions in P.R.C.

As a follow up to our article on requirements for "Establishing a foreign bank branch in China", we thought it may be useful to briefly examine the suprevision requirements of the banks once they have set-up these operations.

Administration Ordinance on Foreign Financial Institutes in P.R.C.
Chapter Four: Supervision and Administration

Article 22 - The saving rates, loan rates and handling charge rates must be in accordance to the related regulations of the PBC.

Article 23 - If the financial institute wants to operate deposit business, the institute should hand in reserves against the deposits to the People's Bank of China (PBC). The reserve rate will be decided and may be altered by the PBC.

Article 24 - 30% of the operational funds of the foreign bank branch should be interest-bearing capital, including its deposit in the designated banks required by the PBC.

Article 25 - The capital adequacy ratio must be greater than 8% in Wholly Owned Foreign Banks or Joint Venture Banks.

Article 26 - Except for the PBC's approval, the credit granting to one enterprise and the related enterprises should not be more 25% of the bank's capital in Wholly Owned Foreign Banks or Joint Venture Banks.

Article 27 - The fixed assets may not be greater than 40% of the owner's equity in Wholly Owned Foreign Banks or Joint Venture Banks.

Article 28 - The quotient of RMB in the bank's capital and that of RMB in the bank's risk capital must be greater than 8% for Wholly Owned Foreign Banks and Joint Venture Banks. The quotient of RMB in the bank's operation funds plus reserve capital and that of RMB in the bank's risk capital must be greater than 8% in foreign banks' branch The PBC may altert this ratio when necessary.

Article 29 - The financial institute should insure the liquidity of its capital. The liquidity ratio must be greater than 25%.

Article 30 - The foreign exchange deposits absorbed from China could not be more than 70% of the total foreign exchange capital in China.

Article 31 - The foreign financial institute should accrue a bad debt reserve.

Article 32 - The foreign financial institute should engage a Chinese Certified Public Accountant approved by the PBC branch for audit purposes.

Article 33 - The financial institute should apply for PBC approval and then register in the industry and commerce management and administration department if they intend to:

1. Set up branches.
2. Change or transfer Registered Capital, add or reduce operation funds.
3. Change the name or the address of the institute.
4. Adjust the business scope.
5. Change the shareholders with more than 10% of the total capital.
6. Modify the Articles of the institute.
7. Change the senior management personnel.
8. Other situations as required by the PBC

Article 34 - Financial Statements and other related materials of the foreign financial institute should be presented to the PBC or its branch.

Article 35 - The PBC and its branches are entitled to examine and audit the foreign financial institute's deposits, loans, accounts settlements and bad debts, and are entitled to ask the foreign financial institutes to present related documents, materials and reports, and entitled to punish the foreign financial institutes for any illegal doings.

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