18th October 2018
MSI's Chinese accounting member firm Lehman Brown Limited provides an overview of the administrative measures on foreign-invested securities companies.
In the “Notice of the State Council on Several Measures to Promote the Growth of Foreign Capital”(hereinafter referred to as “the Notice”) promulgated by the State Council on 8 August 2017, the Chinese government listed the securities industry as one of the industries whose investment scope is to be expanded for foreign investors. At the same time, on 10 November 2017, in the introduction of the meeting results between China and America given by ZhuGuangyao, Vice Finance Minister.He mentioned that relevant regulations that permit proportion of investment in securities, funds and futures to reach 51% will be issued. And there will be no restrictions in the proportion of investment in three years.
In response to the speech and the Notice, China Securities Regulatory Commission (“CSRC”) released “Administrative Measures on Foreign-invested Securities Companies” (hereinafter referred to as “the Administrative Measures”) on 28 April 2018. The regulation came into effect on the day of issue.
Comparison of the new and old policies
The “Administrative Measure” were revised and renamed on the basis of the “Rules for the Establishment of Foreign-funded Securities Companies” (hereinafter referred to as “the Rules”). Generally, compared with the Rule, the highlight of the Administrative Measures is that it allows the foreign investors to become the controller of the securities companies and removes the restrictions on the types of business that foreign-invested companies can involve in. The specific differences are mainly reflected in the following four aspects:
1. Types of foreign invested securities companies
Comparing with the Rules, the Administrative Measures further expands the scope of securities companies that foreign investors are permitted to invest in. The original types of securities companies stated in the Rule were joint venture securities companies funded and established by both foreign and domestic shareholders and foreign-invested securities companies converted from domestic-funded securities companies by transferring equity shares to foreign investors.
According to the Article 2 in the Administrative Measures, below are three types of securities companies in which foreign investors could currently invest in China:
(1) Joint venture securities companies funded and established by both foreign and domestic shareholders.
(2) Foreign-invested securities companies converted from domestic-funded securities companies by transferring equity shares to foreign investors.
(3) Foreign-invested securities companies converted from domestic-funded securities companies by changing the actual controller of the shareholders of domestic-funded securities companies to foreign investors.
As concluded from above, while retaining the original types in the Rules, the Administrative Measures added the third condition where foreign investors are permitted to become the controller of the foreign-invested securities companies.
In our opinion, the expansion of the scope stated in the Administrative Measures leads to more involvement of investment in the China securities market by foreign investors. Moreover, the expansion enables foreign investors to benefit from the development of China securities market.
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LehmanBrown International Accountants is a China-focused accounting, taxation and business advisory firm, operating in Beijing, Shanghai and Shenzhen.
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