As China continues to open its markets in association with its accession to the WTO, financial institutions from around the world have begun to take more concrete steps to expand in China. Accordingly, the PRC government has formulated and issued a series of new regulations and measures, which translate WTO commitments into specific rules governing foreign participation in the financial sector. At the end of last year, on December 8, 2003, new measures regarding the administration of overseas financial investment in domestic financial institutions were adopted by the newly-formed China Banking Regulatory Commission ("CBRC"). This body of regulation is known as the Measures on Administration of Equity Investment in Domestic Financial Institutions by Overseas Financial Institutions (the "Measures"). The Measures have the following features:

1. Administration Authority
The Measures provide that the CBRC shall be the administrative authority and it is in charge of supervising equity investment in domestic financial institutions by overseas financial institutions (“OFIs”).

2. Overseas Financial Institutions
OFIs can include international financial institutions and foreign financial institutions. “International financial institutions” refers to the World Bank and its subsidiaries, other intergovernmental development-oriented financial institutions and other international financial institutions recognized by the CBRC. “Foreign financial institutions” are those established and registered in foreign countries. These include financial holding companies, commercial banks, securities companies, insurance companies, fund companies, etc.

3. Investment Requirements for Overseas Financial Institutions
Generally, the Measures require that OFIs should make investment in cash. An OFI that desires to purchase equity in a Chinese commercial bank should have total assets of US$10 billion. OFIs that desire a stake in a credit co-operative or other non-banking financial institution should have total assets of up to US$1 billion.

4. Investment Limitation
It is worthy of note that investment contributed by a single overseas financial institution to a domestic Chinese Financial Institution may not exceed 20% of the total equity. If the aggregate investment amount of foreign-owned equity held by several overseas financial institutions in a non-listed Chinese financial institution reaches or exceeds 25% of total equity, such non-listed financial institution shall be regarded as a foreign-invested financial institution. On the other hand, if the aggregate investment of foreign owned equity held by several overseas financial institutions in a listed Chinese financial institution reaches or exceeds 25% of total equity, then that listed financial institution shall still be regarded as a Chinese financial institution.

5. Application Scope
The Measures should do not apply to the purchases of transferable shares of a listed domestic financial institution from the stock market, nor to equity investment in automobile financial companies.

With the enaction of the Measures, it is likely that China will see a great deal merger and acquisition activity among foreign and domestic financial institutions, which will help China’s financial sector grow in sophistication and scope.

-Janet Qu