The United States criticized China on Monday for failing to fulfill World Trade Organization commitments to open its financial services market, while the European Union and Japan pressed for answers on specific areas of Beijing’s regulations.
“While we welcome China’s progress in implementing many of its financial services commitments, it appears that China has not implemented, or has only partially implemented, some of them,” the U.S. Trade Representative’s office said in a statement made at the WTO in Geneva.
The trade office, known as the USTR, urged China “to take immediate steps to address the concerns … and further improve foreign companies’ access to its financial services sector.” It made the comments as part of a final WTO review of China’s progress in implementing the promises it made to join the World Trade Organization in 2001.
The terms of China’s accession called for an annual review during the first eight years and a final one in the 10th.
The U.S., Japanese and EU representatives questioned China’s restrictions on foreign ownership of Chinese banks and insurance companies as well as its commitment to streamline banking regulation and make the rules clear.
“China agreed that qualified foreign financial institutions would be permitted to establish Chinese-foreign joint banks immediately after China acceded to the WTO and it did not schedule any limitation on the percentage of foreign ownership in these banks,” the USTR said.
“To date, however, China has, in practice, placed limits on the sale of equity stakes in existing Chinese-funded banks to foreign investors. Separately, foreign banks continue to face slow-downs in obtaining regulatory approval to expand their operations in China through the establishment of new internal branches.”
CHINA DEFENDS RECORD
China’s representative, reading from a prepared text in response to written questions, defended China’s record and said it had kept to the letter of WTO law but had never signed up to any commitments on acquisitions of banks.
The policy of limiting foreign ownership of Chinese banks to 20 percent per investor, or 25 percent in total, was within WTO rules and China had no plan to change its own rules in the near future, the Chinese diplomat said, according to sources with knowledge of the closed-door committee proceedings.
Asked why foreign bank branches could only be set up one at a time, he said that getting hardware, staff and management up and running was too onerous a task to allow a whole network to be rolled out in one go.
And he denied China UnionPay had a monopoly on e-payment, an accusation that is already the subject of a U.S. suit against China at the WTO.
China UnionPay was simply the only service provider of e-payment interbank clearing of bank cards, and China had no WTO obligation to open up its market to “non-financial institutions such as Visa”, he said, although it would gradually open up bank card clearing as the market developed.
China was also considering opening up the third-party motor insurance market to foreign firms, but there was no timetable, he added.
A Japanese question suggested China could raise the $30 billion cap on investment in China’s stock markets by foreign mutual funds, the so-called Qualified Foreign Institutional Investors (QFII) scheme.
But by September this year, there were 103 QFII institutions with total investment of $20.69 billion, so China had not considered raising the upper limit, the Chinese official said.
The USTR also accused China of taking “an unduly long time” to approve requests by U.S. insurance companies already established in China to open new branches. It also has sometimes been slow with requests related to establishing new insurance companies, the trade office said.
“In addition, serious concerns remain regarding foreign companies’ access to China’s market for enterprise annuities services, which involve certain types of pensions. China’s licensing system for this services sector has been closed for the past four years,” the USTR said.
The USTR is required by law to produce an annual report to Congress on China’s compliance with rules. That report is usually released around Dec 11, the anniversary of China’s entry to the WTO.
For China, the end of its 10-year review period means a much reduced burden of regular scrutiny at the WTO.
(Reporting by Doug Palmer in Washington and Tom Miles in Geneva; Editing by Bill Trott and Paul Simao)