China: A summary of Implementing GATS Commitments in Main Service Sectors

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1 China: A summary of Implementing GATS Commitments in Main Service Sectors Sectors Commitments Progresses in implementation Banking Location: Upon accession, foreign currency business allowed Foreign currency banking business was fully opened in 2001; From without geographical restriction. Geographical restrictions on local currency business of foreign banks will be phased out over five years; four cities opened upon accession, four additional cities thereafter. Products: Within two years after accession, China will permit foreign December 2003, foreign banks were allowed to provide local currency service to Chinese enterprises. Currently, 13 cities have been opened for foreign bank on local currency business. Volkswagen, General Motors, Ford, Toyota were allowed to conduct banks to provide local currency services to Chinese enterprises; auto finance business. within five years to all Chinese individuals. Investment: Within five years after accession, all current nonprudential measures regarding the ownership, operation and establishment of foreign banks, as well as those concerning their Implementation: ceiling on foreign ownership in local banks was raised from 15% to 20% for single shareholders; the requirement on the working capital of foreign bank s branch was lowered; foreign banks were allowed to engage in derivatives and insurance companies crossbranches and restrictions on issuing licenses, will be eliminated border foreign currency custodial services. 6 commercial banks have had (national treatment). partial foreign ownership. In 2004, marked by the RMB45 billion ($5.4 billion) capital injection, Bank of China and China Construction Bank started their comprehensive reforms. (see Wang s PPT for updates) Insurance Location: All geographical restrictions will be lifted in three years after the entry. Product: Upon accession, foreign life insurers will be permitted to provide individual (non-group) life insurance services. Two years after entry, they will be permitted to provide health insurance, group insurance, pension insurance and annuities to Chinese and foreign customers. Reinsurance is completely open upon accession, with no restrictions. Investment: Upon accession, foreign life insurers will be allowed to hold 50% ownership in joint ventures. They may choose their own joint-venture partners. For non-life, China will allow branching or 51 % foreign ownership upon accession and wholly owned subsidiaries in two years after the entry (i.e., no restriction on the form of enterprise establishment). Licenses will be granted solely on the basis of prudential criteria with In January 2002, Generali China Life Insurance became the first jointventure insurance company in China after WTO accession. Later on, similar joint-venture life insurance companies such as Sino-French Life Insurance, MetLife China, etc. were established,. Air China and Korean Samsung Life, China Eastern Airline and Taiwan Cathay Life have been working on cooperation procedures. Major international insurance companies have already entered China s insurance market. Till the end of 2003, 39 foreign insurance companies had opened 70 branches, and 124 foreign insurance companies had established representative office in China. On supervision, China accelerated its steps on approaching international standards. The supervision principal based on Solvency Supervision was adopted. Major national insurance companies reformed their ownership structure, and were successfully listed in stock market. The market cap of the 3 national insurance companies which was listed abroad accounts more than half of the total domestic market.

2 Securities Distribution /Retail Telecommunication no economic needs test or quantitative limits on the number of licenses granted. Product: Foreign securities companies may engage directly in B share business. Investment: Within three years, foreign investment banks will be permitted to establish joint ventures, with foreign ownership not exceeding 33 %, to engage (without Chinese intermediary) in underwriting domestic shares (A shares) and underwriting and trading in foreign currency denominated securities (B and H shares, government and corporate debts). Representative offices of foreign securities companies may become special members of Chinese stock exchanges. After accession to the WTO, foreign service suppliers may establish joint ventures to engage in the commission agents' business, wholesale business and retail business of all imported and domestically produced products, except for tobacco, salt, books, newspapers, magazines, pharmaceutical products, pesticides and mulching films, chemical fertilizers, processed oil and crude oil; Within 3 years of accession, eliminate the restrictions on store numbers, locations, shareholding for all joint ventures; within 5 years of accession, eliminate the restrictions on all products excluding tobacco and salt. Value-added business: Foreign service suppliers will be permitted to establish joint-venture value-added telecom enterprises, without quantitative restrictions, and provide services in the cities of In the first half of 2004, China Insurance Regulatory Commission approved the establishment of 18 new Chinese Insurance Company of different kinds. 11 foreign financial institutes have been granted Qualified Financial Institutional Investor (QFII) qualification to enter China s securities market. In the past a year and a half, China Securities Regulatory Commission approved the establishment of 13 joint-venture fund management companies. Joint-venture securities companies also emerged. Newly established China-Euro Securities Limited and Changjiang BNP Paribas Peregrine Securities both have 33% foreign shares. The Regulations on Management of Foreign Investment in the Commercial Sector was implemented from June 1st, Foreign retailers were allowed to open stores in all provincial cities, and small foreign-funded retail companies can be directly authorized by local authorities in charge of commercial sector. Since December 11, 2004, Chinese Government lifted the restrictions on shareholding, locations and store numbers for all foreign-funded companies in the commercial sector. According to statistics from the Ministry of Commerce, a total of 108 foreign retailing companies have been approved in China with an accumulated investment of US$840 million. They opened 3,361 stores, covering a space of 6 million square meters. The investment accounted for 0.15% of China's accumulated foreign direct investment. SK Korea and China Unicom jointly established UNISK(Beijing) Information Technology Co. Ltd. Telstra settled for value-added services. 1 SingTel is collaborating with China Telecom to provide 1 Clark, Robert (2002) Long march to China market,telecom Asia, 4 December.

3 Rail / Road Transport Shanghai, Guangzhou and Beijing but with foreign shares no more than 30%. Within one year of accession, the areas will be expanded to second tier cities(chengdu, Chongqing, Dalian, Fuzhou, Hangzhou, Nanjing, Ningbo, Qingdao, Shenyang, Shenzhen, Xiamen, Xi'an, Taiyuan and Wuhan) and with foreign shares no more than 30%. Within two years, there will be no geographic restrictions with foreign share not exceeding 50%. Mobile Voice and Data Services: Upon accession, foreign service suppliers be permitted to establish joint-venture enterprises, without quantitative restrictions, and provide services in and between the cities of Shanghai, Guangzhou and Beijing with foreign shares not exceeding 25%. Within one year, the areas will be expanded to second tier cities with foreign investment less than 35%. Within three years, foreign investment be no more than 49%. Within five years, there will be no geographic restriction. Domestic and International Services: Within three years after accession, foreign service suppliers will be permitted to establish joint-venture enterprises, without quantitative restrictions, and provide services in and between the cities of Shanghai, Guangzhou and Beijing with foreign share no more than 25%. Within five years, the areas will be expanded to second tier cities with foreign share not exceeding 35%. Within six years, there will be no geographic restriction and foreign investment shall be no more than 49%. For road transport, within one year after China's accession, foreign majority ownership will be permitted, within three years after China's accession, wholly foreign-owned subsidiaries will be permitted. For rail transport, within three years after China's accession, foreign majority ownership will be permitted and within six years after China's accession, wholly foreign-owned subsidiaries will be permitted. corporations with global communications links. 2 BT is building network nodes in Shanghai and Beijing, for international corporate communications, as part of a services agreement with China Netcom, the number two fixed-line carrier; BT is also looking at collaborating in call centers. 3 So far only one operator Japan Telecom has set up a totally foreign-owned telecoms subsidiary in China, in January Currently more than 10 new companies are in the applying process. Vodafone UK bought shares of China Mobile which was listed in Hong Kong Stock Exchange. From 2002 to now, China s 4 major telecommunication providers have all been listed in foreign stock exchanges. In 2001, the State Council published Regulations on Management of Foreign Investment in Telecommunication Sector (No. 333). In July 2004, the 3rd draft of Telecommunication Law had been submitted to the Legislative Office of the State Council, it s expected to be published in According to Ministry of Communications, from Dec. 1, 2002, foreign companies are allowed to invest in Chinese entities, and establish joint ventures in the area of road transportation, with maximum foreign shares up to 75%. In comparison, the opening process of rail transport was slow. No joint venture has been established, nor did any foreign companies involved in rail transport market. The main reason might be because the double roles (regulator and service provider) that the Ministry of Railways is still 2 China Media Intelligence (2003) SingTel signs China Telecom deal, 25 August. 3 Young, Doug (2004) BT to make biggest China investment with China Netcom, Total Telecom, 19 January.

4 Construction Within three years after accession, wholly foreign-owned enterprises will be permitted. Wholly foreign-owned enterprises can only undertake the following four types of construction projects. (1)Construction projects wholly financed by foreign investment and/or grants. (2) Construction projects financed by loans of international financial institutions and awarded through international tendering according to the terms of loans. (3)Chinese-foreign jointly constructed projects with foreign investment >=50%; and Chineseforeign jointly constructed projects with foreign investment < 50% but technically difficult to be implemented by Chinese enterprises alone. (4)Chinese invested construction projects which are difficult to be implemented by Chinese construction enterprises alone can be jointly undertaken by Chinese and foreign construction enterprises with the approval of provincial government. Tourism and Travel related Videos/ Movies/ Cinemas Foreign services providers may build, renovate and operate hotel and restaurant in China in the form of joint ventures with foreign majority ownership permitted. Qualified foreign services suppliers are permitted to provide services in the form of joint-venture travel agencies and tour operators in the holiday resorts designated by the Chinese government and in the cities of Beijing, Shanghai, Guangzhou and Xi'an upon accession. Foreign majority ownership will be allowed by Jan 1st, Wholly foreign-owned companies will be allowed by the end of Within six years after accession, there will be no restriction on the establishment of branches of the joint-venture travel agency/tour operator except that joint ventures or wholly foreign owned travel agencies and tour operators are not permitted to engage in activities of Chinese traveling abroad. Upon accession, foreign services suppliers will be permitted to construct and/or renovate cinema theatres, with foreign investment no more than 49%. playing. The strict control on price and rail route also hindered foreign investors involvement. Ministry of Construction and former Ministry of Foreign Economic and Trade Cooperation published the Regulations on Management of Foreign Investment in Construction Sector. It s implemented from Dec. 1, Currently, foreign companies have advantages over domestic companies in big projects with high-tech contents. China has fully opened its hotel sector for competition and major international hotel groups have already entered China s market. 3 years after WTO accession, China accelerated its opening pace on travel agency business. In July 2003, years ahead of its committed schedule, China Administration of National Tourism approved the establishment of the first wholly foreign-owned travel agency; China now has 5 foreign travel agencies, 13 joint-venture travel agencies. China is promoting qualified Chinese travel companies to expand their business abroad. Till the end of 2004, 63 countries or regions has become travel destinations of Chinese travel companies. In Dec. 2003, the State Administration of Radio Film and Television gave the green light on the establishment of film making and distribution joint-ventures. On Oct. 10, 2004, foreign investments were allowed to enter the areas of movie/film production, with foreign shares no more than 49%.

5 Books, newspapers, magazines Commitment focuses on distribution and retail. Foreign service suppliers will be permitted to enter retail market within 1 year after accession, and wholesale market within 3 years of accession. Source: Caijing Magazine 2004 Issue.23 In Oct. 2004, together with state-owned China Film Group and the privately run Hengdian Group, Warner Brother was approved to establish a joint venture Warner China Film. On Nov. 25, 2004, Sony announced its joint-venture television company with China Film Group. Before that, Viacom has started its cooperation with Shanghai Wenguang News and Media Group and Beijing Television Station in television program producing area. From Nov , foreign media company was allowed to invest in China s radio, television program producing companies with foreign share no more than 49%. China opened the retail market of books, newspapers and magazines to foreign investor in foreign invested publication companies have been approved. In 2002 Hong Kong Global China Group joined forces with the People's Daily Press, formed Greater China Media Services Limited, engaging in the nation-wide distribution of newspapers, magazines and books, across the fields from retail to wholesale. In April 2004, Beida Jade Bird Group(parent company of the listed Jade Bird) pledged US$12 million to become a financial investor in China Youth Daily, to establish an newspaper and media venture. In July 5, 2004 TOM group was approved to form joint-venture with China PC Weekly.