China loosens requirements for foreign insurance companies and banks to set up a business in the country. Here is everything you need to know.
The Chinese government announced several reform initiatives in April 2018 to further open up its insurance and banking sectors to foreign players. This is a perfect opportunity for those who wish to venture into China and Asia.
Although the latest policy changes make it easier for foreign players to expand into China, there are still requirements and procedures they need to comply with to ensure a smooth expansion.
Revised regulations for foreign banks setting up and expanding their business in China
One of the highlights of the new policy is that branches of foreign banks are now allowed to conduct a broader range of banking products in China under loosened administrative licensing policies.This improves the business environment for foreign banks in China and puts the market access standards between Chinese banks and foreign banks on a fairer level.
Foreign banks must fulfill the following criteria before venturing into China:
- have a minimum amount of registered capital of CNY1bn or the equivalent in a freely convertible currency and the registered capital shall be the paid-in capital;
- have experience in international financial activities and is a commercial bank;
- possess total assets not less than US$10bn as at the end of the year prior to the application for establishment;
- have a sound organisational structure, management system and qualified directors, senior managers and employees who are familiar with the banking business;
- provide any other materials required by the banking regulator.
Procedures for foreign investors to set up a banking business in China
The procedures for setting up a foreign bank remain the same. For instance, foreign companies must obtain a financial permit issued by the banking regulator of the State Council before starting a bank in China.
However, under the new policy, existing foreign-invested banks and their branches are now allowed to:
- issue government bonds on a commission basis and undertake government bonds without applying for an administrative license. Instead, they only have to report to the regulator within five working days of starting a business;
- carry out business and derivative transactions in RenMinBi (RMB) authorised by a foreign-invested management bank if it has been approved to do so;
- allocate the branch operating funds, as long as it meets the threshold and other regulatory indicators.
Amended requirements for foreign insurance companies to set up a business in China
In the past, international insurance brokers were prohibited from doing business with small and medium-sized enterprises and individuals. However, the government has removed this restriction and now allows foreign-invested insurance agencies to tap into these markets.
Moving forward, qualified insurance companies will no longer be subject to China's legal restrictions on the operation of their businesses nor will they need to apply for an exclusive business license.
Nonetheless, to establish an insurance company, a foreign company must at least meet the following criteria:
- has been in the insurance business for 30 years or more;
- has a representative office established within the territory of China for no less than 2 years;
- total assets of the company is not less than US$5bn as at the end of the year prior to the application for establishment;
- the minimum registered capital of a joint venture insurance company or wholly-owned insurance company shall be CNY200m or the equivalent amount in freely exchangeable currency;
- provide any other materials required by the insurance regulator.
Procedures for foreign investors to set up an insurance business in China
Similar to the procedures of setting up a banking firm in China, the procedures to set up a foreign-invested insurance firm in China remain the same. A License for Insurance Brokerage Business is a must to run an insurance business in China and foreign investors have to pass a preliminary assessment before applying to establish a foreign-invested insurance company.
However, thanks to the new policy, future foreign-invested insurance players are now allowed to:
- design insurance policy plans, select insurers and handle insurance formalities for policyholders;
- assist the insured or beneficiaries with insurance claims;
- operate reinsurance brokerage business;
- provide principals with the assessment to prevent disasters, damage or risks, or risk management consulting services; and
- conduct any other business approved by the China Banking and Insurance Regulatory Commission.
As for existing foreign insurance companies, they can do the same after renewing their License for Insurance Brokerage Business with the local insurance regulatory bureaus.
Talk to an expert
Though it is easier now for a foreign company to set up an insurance arm or a bank in China, the procedures and requirements can still be complicated, especially for those who do not have an in-depth understanding of the local regulations and cultures.
To be successful, you need to be able to adapt quickly. TMF Group has the depth and breadth of knowledge and experience you need to make your business feel at home and adapt into China's market.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.