Giving a Boost to Foreign Equity Participation in Domestic Financial Institutions

By Christina Choi & Carmen Kan, Clifford Chance, Hong Kong

China is now more receptive than ever to foreign investment in domestic financial institutions. From a statement released on the website of the China Banking Regulatory Commission (CBRC) on February 9 2004, it is clear that private and foreign equity investment will be particularly encouraged in small and medium-sized domestic commercial banks. This policy trend is well supported by the recently issued Administration of Investment and Equity Participation in Chinese-invested Financial Institutions by Offshore Financial Institutions Procedures(境外金融机构投资入股中资金融机构管理办法) (the Procedures).¹ The Procedures are a milestone in PRC commercial law. For the first time, a legal framework and transparent requirements for equity investment by foreign investors in domestic financial institutions is given.

According to a spokesman for the CBRC, the Procedures have been issued with a view to attracting more foreign investment to strengthen the capabilities of existing domestic financial institutions. Enhancing the competitiveness of domestic institutions is an urgent task in light of the increasing levels of foreign investment in the finance industry that will occur as China further opens the sector to deliver on the country's WTO commitments.