Mainland China briefing: foreign ownership limits

On 11 October 2019, the China Securities Regulatory Commission (CSRC) released in a press conference the time frame for removal of limits on foreign stakes in financial services entities.

This announcement was a follow-up from an earlier CSRC announcement in April 2018, which stated that the CSRC would accept applications from securities companies, fund management companies (FMCs) and futures brokers to increase their foreign ownership by up to 51%. The CSRC further proposed to bring forward the timeline to allow these entities to apply for up to 100% wholly foreign ownership from 2021 to 2020. This plan would grant foreign companies full ownership to domestic securities companies, FMCs and futures brokers in Mainland China.

The specific timetable to remove limits on foreign ownership set by the CSRC is as follows:

1. Futures brokers – 1 January 2020;
2. FMCs – 1 April 2020; and
3. Securities companies – 1 December 2020.

This announcement is a strong sign of the Chinese government’s willingness to further open up its financial industry and attract more foreign capital to the markets in the Mainland. The increase in foreign ownership and foreign players in the Mainland Chinese market should also boost the growth of the local financial industry through competition with the foreign owned companies. This announcement should help promote the internationalization of Chinese financial markets for asset management and commodities futures.

For foreign asset managers who are seeking to acquire wholly-foreign ownership of a domestic FMC, securities company or futures broker in China, there are several factors that they should take into consideration. For instance, they should assess if they are fully prepared to move to 100% ownership and make such a commitment to China’s market, taking into consideration the relevant market conditions and their relevant experience. Furthermore, given the time lag between making a CSRC application and receiving final CSRC approval, it is advisable that foreign asset managers seeking to acquire 100% ownership prepare and submit their applications as early as possible, either by way of increasing their equity in their existing joint venture, or by setting up a new wholly foreign-owned entity.