FINANCIAL SERVICES. Financial Services in China. Capitalizing on the World s Fastest Growing Market. Industry Insight

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1 2011 FINANCIAL SERVICES Financial Services in China Capitalizing on the World s Fastest Growing Market Industry Insight

2 ISTOCKPHOTO

3 Executive Summary To create sustained economic growth, China has plans to shift its economy from a manufacturing-based, export economy to one more driven by domestic consumption, and this transformation has turned China s focus towards building its financial services market. Due to China s historic economic expansion in the last two decades, capital is no longer scarce companies are looking for more sophisticated ways to manage their financial dividends and the consumer demand for financial services is on the rise. This has resulted in a dramatic increase in market size for financial services of all kinds. Financial intermediation, essentially the sum total of deposits and loans, totaled approximately RMB1.77 trillion, or approximately US$280 billion, in At the end of 2010, total Chinese banking assets topped RMB94.3 trillion (US$15 trillion), up 20 percent from the previous year. In 2010, China produced US$5.6 billion in investment-banking revenue the largest in Asia. China s total insurance premium volume has grown RMB160.9 billion (US$25 billion) to RMB1.45 trillion (US$225 billion). 2. Creating conditions to open the China market for U.S. companies who want to export to China. U.S. companies looking to export goods to China, particularly SMEs, are supported by U.S. banking institutions in China which provide local market expertise and channels for financial transactions and asset management. U.S. financial institutions in China also provide capital and financing for Chinese companies eager to import products and services from the U.S. 3. Competing in the fastest growing market in the world. Increasingly, in order to compete globally, U.S. financial services providers will have to be successful in China. U.S. competitors from Europe, Asia and elsewhere, who compete with American financial service providers around the world, are competing here in China as well. China s focus on developing its financial services market has driven foreign direct investment in financial services which increased 122 percent from 2007 to This growth has the potential to create tremendous opportunities for U.S. banks, investors and insurance providers. AmCham Shanghai member companies are focused on accessing this growing market and in fact have taken a lead role in China s financial service market ranking second in financial service exports to China behind Japan. U.S. financial services play a key role in the larger effort to increase U.S. service exports, an area where the U.S. has significant competitive advantages, and achieve the objectives of the National Export Initiative (NEI). In addition, the success of financial service providers in China is important to overall U.S. competitiveness in China. A strong American presence in China supports U.S. economic growth in several ways: 1. Supporting Chinese foreign direct investment (FDI) in the U.S. U.S. financial service providers in China provide the know-how and capital to support Chinese foreign direct investment (FDI) in the U.S. Already sought-after at the U.S. state and city level, Chinese investment in the U.S. reached US$30 billion in 2010 and has supported economic growth and the creation of U.S. jobs. While the opportunity in China is great, American firms face significant challenges and many have been unable to fully penetrate the China market. Foreign banks hold only two percent of China s total financial assets. In China, U.S. firms are confronted by a complex and sometimes inconsistent regulatory policy that tend to favor local Chinese financial service providers, a tightly controlled monetary policy and number of other obstacles summarized in this report. There has been some progress toward addressing these challenges - free and fair access to the China financial services market has been a top agenda item at bilateral and multilateral discussions. However, follow up on commitments made by China to improve access for American financial firms will be critical to U.S. competitiveness in this area. AmCham Shanghai recommends U.S. engagement with China to encourage the development of clear regulatory policy, access to China s insurance, capital and payment processing markets for foreign entities and enforcement of national treatment for foreign financial service providers. The reduction of challenges for U.S. companies would not only support the U.S. economy, but help China reach its ultimate goal of fostering a vibrant financial services market and establishing Shanghai as a global financial center. 3The AMERICAN CHAMBER of COMMERCE in SHANGHAI 3

4 Commercial Banking China s commercial banking sector has performed strongly even as the rest of the global economy struggles to recover from the 2008 economic downturn. Total banking assets in China topped RMB94.3 trillion (US$15 trillion) at the end of 2010, up 20 percent from the previous year, with foreign bank assets topping RMB1.74 trillion (US$270 billion). China represents enormous opportunities for U.S. commercial banks. Tapping into this market means access to the growing number of local Chinese corporations seeking additional capital and the growing number of middle class and wealthy Chinese who are eager to grow their wealth through diversified holdings. Moreover, because mainland China is also a major export gateway to the rest of Asia, a presence in China for U.S. banks means connections with China s major trading partners in the rest of East Asia and Southeast Asia. China represents a potential US$1 trillion in RMB trade flows, and access to this growing market represents a chance to build up strong U.S. businesses. However, there are growing concerns about the ability of U.S. companies to compete fairly in this market. The market share for foreign commercial ISTOCKPHOTO banks is 1.8 percent of total banking assets, up from 1.7 percent in 2009 but down from 3 percent in Many concerns are directly related to China s closely managed financial policies that are aimed to grow and manage China s economy and nurture China s national champions. Challenges Convertibility of the RMB. A main hurdlefor commercial banking are the limitations on RMB convertibility, as it presents a direct obstacle to organic interaction between global and local Chinese trade. All foreign exchange (FX) transactions must go through China s State Administration of Foreign Exchange (SAFE), which has tight policy control. Many banks and customers are limited in their ability to navigate in areas of growing areas of trade transactions. Critical to the success of U.S. financial services providers is clear, transparent regulations to guide government business activities. 4 The AMERICAN CHAMBER of COMMERCE in SHANGHAI

5 Example: Limited RMB convertibility adversely affects over-the-counter (OTC) commodity hedging in China, a growing market that allows for the trading, and ultimately, distribution of risk. The nature of the trade means that transactions can only be settled using one s own source of foreign currency for example, one can only trade in U.S. risk in U.S. dollars. SAFE, however, does not allow FX conversion from RMB for these types of transactions. Businesses operating in China must have their own source of foreign currency in order to participate in the market. This is largely limited to companies with export activities, meaning that many local players are effectively shut out of a large part of trade in and out of China. Regulatory policy. China s banking sector is closely controlled but there are many areas in which regulatory policy is ambiguous, or where two or more regulatory bodies in China disagree on policy execution. Critical to the success of U.S. financial service providers is clear, transparent regulations to guide and govern business activities. Example: Uneven regulatory policy affects securitization, which is important in diversifying an organization s source of funding beyond bank loans. Corporations are increasingly looking to use future earnings to finance activities by being able to share the risks and benefits of assets underwritten in the banking sector, but there are currently no concrete regulations on securitization. Today, the regulations around loan assets transfer, legal framework around title/asset claim and registration system on asset pledge are not conducive to broader application but securitization can change that. The current legal framework for securitization is not clear, as regulation around loan transfers are a close reference but not catered to securitization. This increases the risks and costs in executing such a program. Corporations are allowed to submit applications, but there are no clear criteria from the China Banking Regulatory Commission (CBRC) for approving this type of transaction. Capital requirements. China maintains minimum capital requirements for foreign banks wishing to operate in China, and their attempts to ring fence foreign banks through capital requirements to manage and Following up on commitments made: Futures trading and uneven regulations In May 2010, the U.S. and China agreed to open up the financial futures trade related to commodities. However, a year later, at the May 2011 S&ED, published guidelines for future trades indicate that there are still limitations for Qualified Foreign Institutional Investors (QFII). Currently, only five big local Chinese banks can offer margin accounts. Brokers seeking to participate must open an account at one of these five institutions in order to fulfill a requirement of internal transfers between investors and brokers. With an agreement, foreign banks can hold custody of such accounts, however, the People s Bank of China (PBoC) has not so far allowed foreign banks to do so. Foreign banks are effectively barred from handling accounts related to commodities. Several institutions are looking to be margin collateral banks for futures trading, but as it stands, the regulation is an obstacle for a level playing field and limits QFII access to futures trading. AmCham Shanghai supports continued follow up on the part of the U.S. government for China to progress on agreements made at the S&ED and other strategic U.S.-China dialogues. ISTOCKPHOTO The AMERICAN CHAMBER of COMMERCE in SHANGHAI 5

6 China has to be a key part of any strategy to increase U.S. exports and jobs. U.S. Treasury Secretary Timothy Geithner mitigate risk is understandable. However, China s capital requirements exceed international norms and banks focused on providing wholesale commercial banking services with no strategic interest in incorporating locally should not face these capital requirements. The current minimum requirement of RMB200 million (US$31 million) for a first branch in China to conduct foreign exchange transactions and a subsequent RMB200 million for local currency operations presents a barrier that prohibits all but the largest U.S. banks from entering the market, ensuring that foreign market share of total banking assets remain at paltry levels. This also impacts the ability of U.S. banks to support U.S. companies in China. Branch expansion. Under current regulatory guidelines, locally incorporated foreign banks are allowed to expand their branch and sub-branch network under China s objective of increasing foreign participation in the domestic financial markets as described in the WTO agreement. At the moment, however, CBRC will only process applications to establish single branches. The branch application is extensive and the review and approval process is time consuming. Basing the ability of U.S. banks to open branches on the permissions of market regulators, rather than market demand, make it more difficult for U.S. banks to maintain strong and profitable growth and limit their competitiveness in China. Growing Jobs at Home As America s economic recovery continues, creating U.S. jobs remains Washington s No. 1 priority. Growing U.S. exports and increasing U.S. competitiveness is integral to that goal - for every additional US$1 billion in exports, an estimated 5,000 new jobs are created. Despite its challenges, China is America s fastestgrowing major export destination and third largest by volume behind only Canada and Mexico. Financial services exports are no exception; not only does it create jobs in the U.S., it also facilitates trade between China and the U.S. and supports Chinese investment in U.S. assets. While U.S. financial services in China are growing, U.S. firms still need support in improving market access among other challenges. Unit MIllioins of USD Financial services exports to China by country, (excl. Japan) UNITED STATES GERMANY HONG KONG EUROPEAN UNION AUSTRALIA FRANCE Source: OECD Library, Australian Government Department of Foreign Affairs and Trade 6 The AMERICAN CHAMBER of COMMERCE in SHANGHAI

7 Payment Processing In 2010, China payment processing systems processed transactions totaling over 12 billion, with a value of RMB1663 trillion (US$258 trillion). Total non-cash payment business, including banknote clearing and bank card settlements, were worth RMB905 trillion (US$140 trillion). Bank cards have also been playing a key role in China s growing consumer market, with bank card sales accounting for 35.1 percent of the country retail consumption in Trends indicate that the China credit card market will open up to international players within the next several years, but this market is currently closed to U.S. service providers. U.S. firms look forward to this opportunity as increasing fees and shrinking profit margins cause banks to consider outsourcing payment processing. U.S. companies can also capitalize on newer iterations of payment processing, including new ways to pay online and mobile payment. Challenges Credit card monopoly. Unionpay (UP), formally known as China UnionPay, is the only bank card association allowed to provide card payment settlement services in China. UP s status is important and an effective way to control risk, leverage resources and reduce cost, IMAGINECHINA but it stifles development and limits market access for Visa, Mastercard and other international players. Clear regulation. China s payment industry is traditionally under PBoC s close monitor and supervision, but there are times when payment processing must go through CBRC. In addition, many regulations do not reflect the current market situation, as existing policy was issued in 1999 and has lagged behind rapid development in the electronic payment processing market. National treatment. Similarly to UP s position as a monopoly player in China, some of China s payment processing favors domestic players instead of creating a fair competitive environment. In third party payment industries, for example, current license approval process is only open to domestic companies, and not to foreign players. In addition, new foreign players face obstacles when trying to enter the payment processing market, including high capital requirement set by the PBoC and a complicated license application process. Bank cards have been playing a key role in China s growing consumer market. 3The AMERICAN CHAMBER of COMMERCE in SHANGHAI 7

8 Investment Banking The investment landscape in China has shifted remarkably. RMB funds have been set up locally, and in many cases they are more flexible and move more quickly than foreign investors. China produced US$5.6 billion in investmentbanking revenue, more than double of the second largest Asian market, Japan. Besides capital, U.S. investment firms are now challenged to bring other value to the table including know-how, brands or market access. U.S. investment bankers are evolving to do just that, pulling all stops to engage this dynamic economy. On the M&A front, foreign investors are looking to tap into China s developing industries. Foreign companies purchases of Chinese firms have reached an all-time high for the period at US$28.4 billion this year. Another area of growth is in Chinese outbound investment in the U.S., facilitated by U.S. investment bank firms in China. Already well-known for its rapid accumulation of foreign exchange (FX) reserves, China s outbound direct investment (ODI) reached nearly US$60 billion last year. China is now the world s fifth largest exporter of capital, and signs have emerged that this figure is likely to double in the next three to five years. Because of its need to secure commodities for its burgeoning consumer base, securing a supply of resources will continue to drive China s ODI for the foreseeable future. Investment in U.S. companies can grow U.S. business and fund jobs at home, while at the same time finding areas of partnerships with the fastest growing major market in the world. IMAGINECHINA Challenges Clear communication of U.S. FDI review procedures. Chinese firms looking to invest in the U.S. and U.S. firms seeking to invest in China are both looking for the same thing: a standardized and transparent regulatory environment. U.S. companies seeking to invest in Chinese assets are faced with many limitations and caveats. On the other side of the coin, Chinese companies looking to invest in the U.S. are sometimes not confident about the regulatory environment there and are particularly worried about the Committee on Foreign Investment in the United States (CFIUS). True or not, CFIUS is not viewed as a transparent or predictable process, and this is hurting the U.S.-China business relationship there is a lot of uncertainty on how to invest in the U.S. Headlines focus on the deals that get rejected, and as a result, Chinese companies are discouraged to invest in the U.S. Ownership restrictions. While investment firms are looking to fund entities in China, companies face a regulatory environment that limits foreign companies from fully participating in the China market. Morgan Stanley and JPMorgan s recently granted permission to enter China s domestic securities market was counted as a historic one: many others are still struggling for access. One particularly challenging area is the requirement for U.S. firms to have a local venture capital partner foreign investment firms are otherwise barred from local securities or IPOs and can only advise. Companies that are able to participate do see high revenue but are unable to take a more managerial role. Similarly, foreign M&As in China are at an all time high, but less than half of those deals involved a transfer of control over operations of the acquired company, as gaining regulatory approval in China continues to be a challenge. 8 The AMERICAN CHAMBER of COMMERCE in SHANGHAI

9 ISTOCKPHOTO Wells Fargo s Partnership with China s GCL-Poly Energy Holdings Supports U.S. Jobs In November 2010, GCL-Poly Energy Holdings China s largest polysilicon producer and one of the top green enterprises in China announced a joint program where Wells Fargo would provide over US$100 million by the end of 2011 to fund solar photovoltaic power projects throughout the U.S. through GCL subsidiary GCL Solar. GCL s projects not only aim to provide a source of electricity at rates equal or lower to traditional utility rates, they invest in U.S. infrastructure and has meant the creation of jobs directly with GCL and indirect job positions in the U.S. We are excited to have the opportunity to partner with Wells Fargo, said Hunter Jiang, Executive President of GCL-Poly and Chairman of GCL Solar after announcement of the partnership. With our continued commitment to bring green power to life and this provision of new capital, we stand ready to invest in the solar business and create more job opportunities in the U.S. Wells Fargo is proud to expand its commitment to growing the U.S. solar market by working with a respected industry player like GCL-Poly, said Barry Neal, director of Wells Fargo s Environmental Finance Group. The solar projects developed by GCL Solar will create new jobs in the U.S. and help businesses and public entities better control their electricity costs. GCL announced in March this year that it would expand its North American headquarters in San Francisco where GCL Solar is based tripling its physical presence in the city to 15,000 square feet. Mayor Ed Lee counted the expansion as a success, indicating the potential for increasing jobs and promoting investment in the city. GCL Solar Energy s success underscores our success in attracting and retaining exceptional, industry-leading cleantech firms to San Francisco, said Mayor Lee. GCL s projects invest in U.S. infrastructure and mean the creation of jobs directly with GCL. 3The AMERICAN CHAMBER of COMMERCE in SHANGHAI 9

10 Insurance China has seen significant growth in the insurance market in recent years driven, to a large extent, by rapid growth of the Chinese economy. From 2000 to 2010, China s total insurance premium volume has grown nine times from RMB160.9 billion (US$25 billion) to RMB1,452.7 billion (US$225 billion), a compound annual growth rate (CAGR) of almost 25 percent. Despite significant growth of the insurance market in China, market penetration remains low. China s insurance penetration (total premiums as a percentage of the GDP) was 3.27 percent in 2009, or less than half of the world average of 7.01 percent. Given that China has the second largest economy in the world and is expected to grow at a rigorous pace for the foreseeable future, its insurance market has much potential for growth. Foreign insurance companies and brokerage firms have made significant contributions to the growth of the insurance industry in China by introducing innovative products, new distribution models, higher service standards and sound risk management solutions. As the domestic insurance market in the U.S. has seen flat growth in recent years, U.S.-based insurers and insurance brokers are increasingly relying on overseas markets for growth. And China has become a key component of such global strategies. While foreign insurers have made significant progress in China in the past two decades, their overall market share in the country remains small it was 4.11 percent in Foreign life insurers collectively had 5.23 percent of the national market share whereas foreign non-life insurers market share was only 1.06 percent a significantly small portion given the growth in China s insurance industry. Difficulty IMAGINECHINA While foreign insurers have made significant progress in China in the past two decades, their overall market share in the country remains small it was 4.11 percent in The AMERICAN CHAMBER of COMMERCE in SHANGHAI

11 in expanding operations geographically and exclusion from mandatory third-party liability automobile insurance are two main reasons why foreign involvement remains low. Challenges: Property and Casualty Insurance National treatment for branch approval. Although official regulations in China make no distinction between domestic and foreign-invested property and casualty (P&C) insurance companies when it comes to granting new branch licenses, foreign insurance companies tend to face more challenges in gaining approval. There has yet to be a precedent where a foreign insurance company has obtained multiple branch approvals concurrently while many domestic insurance companies, even newly established ones, have obtained multiple branch approvals on a concurrent basis. For example, one new domestic insurer received nearly 30 branch licenses in a three-year period following its establishment. Many of those licenses were granted within a short period of time; some of them on the same day. In contrast, few foreign insurance companies, if any, have been able to obtain more than one branch license per year. The disparity in approving branch licenses has helped domestic insurance companies rapidly build up their national networks while limiting geographic expansion of foreign insurers in China. Such unleveled playing field in receiving branch licenses between foreign and domestic insurance companies is contradictory to the national treatment principle of the WTO. Opening of mandatory third-party liability automobile insurance. China has become the largest automobile market in the world. Auto insurance has been a main driver for the growth of P&C insurance in China in recent years and accounts for about 70 percent of the total P&C business. Foreign P&C insurance companies in China, however, are excluded from providing car insurance for mandatory third-party liability (MTPL) because it is considered statutory insurance. Following up on commitments made: The auto insurance market in China During the U.S.-China Strategic and Economic Dialogue in Washington in May, 2011, China pledged to advance toward allowing U.S. and other foreign insurance companies to sell mandatory third party liability (MTPL) auto insurance. Such a pledge is obviously a positive step in the direction of opening up the fast-growing auto insurance market. In fact, opening the auto insurance market is in China s own interest. If foreign insurers are allowed to participate in the auto market in China, they would bring in underwriting expertise, new products and services and best practices. Healthy competition would help the highly competitive auto insurance market refocus on customer service, consumer protection and underwriting results. China should implement its pledge to open the MTPL auto insurance to foreign companies as soon as possible. ISTOCKPHOTO The AMERICAN CHAMBER of COMMERCE in SHANGHAI 11

12 ISTOCKPHOTO Challenges: Life Insurance Investment restrictions on foreign life insurance companies. Foreign life insurance companies are only allowed to operate in China in a joint venture with a domestic partner with the foreign ownership stake capped at 50 percent. Only one foreign life insurance company has wholly-owned branches in China because it was established before China s accession to the WTO and was grandfathered. Most foreign life insurance companies choose to partner with major domestic companies, normally a state-owned enterprise that is not from the insurance industry. The JV model pairs a foreign life insurer with significant insurance expertise and capital with a major Chinese non-insurer that has significant financial resources, government relations as well as customer and distribution networks. While there may be synergies between the two partners, such as a large employee base of the Chinese partner serving as a quick win in a group life policy, divergent goals and expectations of the two partners often prove troublesome. Such challenges have prevented U.S. life insurance companies from increasing their presence in China and, as a result, they are being left out of one of the fastest growing markets in the world. Challenges: Insurance Brokerage As a result of China s commitments to the WTO, which the U.S. government played a critical role in securing, China has gradually opened up the insurance market to international insurance brokers. Since December 2006, international brokers have been able to establish wholly-owned subsidiaries in China in addition to JVs. Several major U.S.-based insurance brokers have operations in China; in addition, numerous U.S.-based independent brokers affiliated with international broker networks are also represented in China through their network partners. One major remaining regulatory barrier that international insurance brokers face in China is that they are only allowed to access large commercial risks, defined as annual premiums in excess of RMB400,000 and total investment of the ensured over RMB150 million. Such restrictions prevent international insurance brokers from servicing small and medium enterprises (SMEs), which are becoming increasingly important in China and have strong demand for risk management support. Allowing international brokers to service the SME sector in addition to large commercial risks would support the growth of SMEs in China by introducing healthy competition, innovative products, better services and international risk-management expertise. 12 The AMERICAN CHAMBER of COMMERCE in SHANGHAI

13 ISTOCKPHOTO Looking Ahead to 2020: Shanghai as a Global Financial Center Shanghai has set its sights on becoming a top-tier global financial center by 2020 to rival Hong Kong and Singapore. The city s ambitions were formalized in 2009 by China s central government with directives to the country s various ministries and departments to support this objective. Shanghai s development as a financial center will not only grow the city into central hub for regional and global capital flows, but ostensibly lead to spillover effects for Shanghai s other industries and for the country s development as a whole. Shanghai already holds an edge over China s other cities: it has the largest city economy in China, with a city GDP of RMB14.9 billion (US$2.3 billion). At the end of 2009, the Shanghai Stock Exchange was the world s third largest by exchange with a US$5.1 trillion turnover. Shanghai s leading position in financial industry can be reflected by it holding the highest added value in China for the last two years. With Shanghai s growth comes the potential for U.S. financial services companies to increase their market share in China, paving the way for other U.S. companies to do business in China and growing their companies worldwide. City Added Value of Financial Services Industry SHANGHAI BEIJING SHENZHEN The AMERICAN CHAMBER of COMMERCE in SHANGHAI 13

14 Shanghai unveiled its own Wall Street bull on the historic Bund this year, signaling its ambitions to build a global financial center. IMAGINECHINA 14 The AMERICAN CHAMBER of COMMERCE in SHANGHAI

15 Recommendations While China s financial services market offers tremendous opportunity and U.S. firms are competing aggressively, they face significant challenges that limit their competitiveness in China and their ability to support American companies hoping to access the China market. AmCham Shanghai urges the U.S. government to engage China on the following issues: 1. Develop transparent regulations and requirements governing foreign financial service providers in China and establish clear roles between regulatory bodies in China. Critical to the success of U.S. financial service providers in China is clear, transparent regulatory environment that avoids ambiguous rules governing financial activities. Efforts should be made to eliminate overlap between regulatory bodies like the People s Bank of China and China Banking Regulatory Commission. 2. Base capital requirements for U.S. banks in China on the financial strength and resources of the bank s head office. When approving a foreign branch in China, rather than a mandatory injection of capital to foot a balance sheet, the authorities could follow market practices of other major financial centers and just consider the financial strength and resources of the applicant s head office, projected capital position, the historical performance and future prospects. This would require additional regulatory capacity and depth, but would important in moving China s financial sector to a coveted elite level. 3. Remove the 50 percent cap on foreign ownership for U.S. financial service providers. U.S. investment banks and insurance providers are capped at 50 percent ownership and forced to engage in joint venture partnerships with local companies, limiting the ability of U.S. firms to operate effectively. Lifting the 50 percent equity cap would allow more flexibility in choosing appropriate legal structures, ranging from joint venture to branch and subsidiary, and enable foreign companies to more easily increase capital in their operations in China, deploy world-class service platforms and invest in China s capital market. 4. Enforce national treatment for branch approval of foreign financial service providers. Although official regulations in China make no distinction between domestic and foreign-invested financial service providers, foreign companies tend to face more challenges in gaining approval for new branch licenses. For both U.S. commercial banks and insurance providers, the approval process is extremely time-consuming. Domestic Chinese financial service providers do not face such obstacles. 5. Follow up on commitments that China has made at the Strategic & Economic Dialogue (S&ED) and the US-China Joint Commission on Commerce and Trade (JCCT). Examples include the pledge made at the May 2011 S&ED to open mandatory third-party liability automobile insurance to international P&C insurance companies and China s commitment to open futures trading to foreign firms. 6. Open the payment processing and settlement market to foreign players. The People s Bank of China has committed to opening the market to foreign companies but as of now, U.S. companies are shut out of this growing market. Unionpay, China s monopoly bank card association, faces no such restriction in the U.S. 7. Lift restrictions on foreign insurance brokers that limit market penetration. Allow international insurance brokers to service small and medium enterprises in China by lifting the restriction on service only large commercial risks, defined as annual premiums in excess of RMB400,000 and total investment of the ensured over RMB150 million. This prevents foreign insurance brokers from servicing small and medium enterprises which is a growing market in China. 8. Ease Foreign Exchange (FX) regulation. Freer RMB convertibility supports risk management development. Authorities should also increase the consistency between regulatory bodies governing foreign exchange in China. 9. Increase support of U.S. organizations that help spread awareness of U.S. investment opportunities. Increased awareness of opportunities to invest in the U.S. is an opportunity to grow U.S. businesses and create American jobs. There are many state institutions in particular that are actively engaged in finding potential partnerships between Chinese entities and U.S. corporations. On the federal level, increasing support to institutions such as the Foreign Commercial Service would be able to facilitate U.S.-China partnerships and provide much-needed capital to U.S. companies and support U.S. jobs. Report produced and compiled by Esther Young and the AmCham Shanghai Financial Services Committee. A special thanks to Ben Kinnas, Committee Chair, and Frances Yijia Wang, Am- Cham Shanghai research analyst. 3The AMERICAN CHAMBER of COMMERCE in SHANGHAI 15

16 The AMERICAN CHAMBER of COMMERCE in SHANGHAI VIEWPOINT Viewpoint An analysis of issues impacting today s business environment in China About The American Chamber of Commerce in Shanghai The American Chamber of Commerce in Shanghai (AmCham Shanghai), known as the Voice of American Business in China, is the largest and fastest growing American Chamber in the Asia Pacific region. Founded in 1915, AmCham Shanghai was the third American Chamber established outside the United States. As a non-profit, non-partisan business organization, AmCham Shanghai is committed to the principles of free trade, open markets, private enterprise and the unrestricted flow of information. For more information, please visit: About AmCham Shanghai s Financial Services Committee AmCham Shanghai s Financial Services Committee (FSC) strives to provide a central point of access and education and a forum for Chamber members on matters concerning the financial services sector. Composed of three sub-committees banking, insurance, and investment services, and a new M&A working group - the Committee s mission is to obtain and exchange information, discuss relevant issues, share resources, access contacts, and source business opportunities with the financial services community. Central to the FSC s role is interfacing with appropriate government agencies and regulators to identify financial services issues and promote the continued liberalization and opening-up of China s financial system to outside investment. The American Chamber of Commerce in Shanghai Shanghai Centre, Suite Nanjing Road West Shanghai China 上 海 美 国 商 会 中 国 上 海 市 南 京 西 路 1376 号 上 海 商 城 东 峰 办 公 楼 568 室 Phone: (+86 21) Fax: (+86 21)