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China announces measures to liberalise financial sector and reduce VAT

Against a backdrop of continuing China-US trade tensions, Chinese President Xi Jinping on April 10, at the Bo'ao Forum for Asia, announced a 'four-point plan' for the further liberalisation of rules governing foreign investment in, and trade with, China.

This largely brings together a number of initiatives which were already underway, with a few new additions. Shareholding cap limitations on foreign enterprise investment and activity in the financial services, automotive, shipbuilding and aviation sectors will be reduced, and import tariffs, including for automobiles, are to be reduced. Details of some of these initiatives were recently released, along with the details of the VAT reductions announced in Premier Li Keqiang's government work report address to the National People's Congress (NPC) back in early March.

The financial sector changes have been moving forward in recent weeks:

  • For the banking sector, there has long been a limitation on foreign equity ownership in Chinese banks and financial asset management companies. This includes a 20% limit for a single foreign investor and a 25% limit for several foreign investors collectively. Under already announced planned changes, both foreign investors and domestic private investors in Chinese banks (which are generally state-owned enterprises) will be subject to the same equity limit rules – specific enacting regulations are still awaited. Alongside this, the Chinese banking regulator issued CBRC Order No. 3 in February 2018, permitting the Chinese subsidiaries of foreign banks to invest in Chinese banks (previously the investment needed to come from overseas directly); scrapping the administrative licensing requirements for some services offered by foreign banks in China (e.g. wealth management, custodian business); and eliminating some of the regulatory pre-approvals previously applying to foreign banks, which had not applied to Chinese banks (e.g. certain fund raising and executive appointment activities).
  • For the investment securities sector, there has long been a limitation on foreign equity ownership in securities companies of 49%. Under already announced planned changes, this is to be lifted to 51% and then fully relaxed three years later. To this end, the Chinese securities regulator issued draft measures in March 2018 which would put this change into effect, to seek public comments. The relaxation also applies to listed securities companies, and the equity holding limit for a single foreign investor is simultaneously lifted from 20% to 30%.
  • For the Chinese payment services sector, and in line with earlier announcements, the central bank in March 2018 issued PBOC Circular No. 7 to permit involvement by foreign non-financial institutions, through a locally established subsidiary, in providing fund transfer services, including online payment, issuance and acceptance of prepaid cards, and bank card acceptance.

These changes are occurring at the same time as China seeks to boost the economy through VAT reductions. Under Circular No. 32, issued by the Ministry of Finance and the State Administration of Taxation in April 2018, effective from May 1, the existing 17% VAT rate, applicable to sale and importation of goods, lease of movable property, and processing and repair services, will be reduced to 16%. At the same time, the existing 11% VAT rate, applicable to transportation, sale and lease of immovable property, telecoms and post services, construction, agricultural products, and water and gas supplies, will be reduced to 10%. The government had earlier indicated plans to reduce the number of VAT rates from three to two (there is also a 6% rate for many services), so further changes are anticipated in future.

Lewis Lu

Khoonming Ho ( and Lewis Lu (
KPMG China
Tel: +86 (10) 8508 7082 and +86 (21) 2212 3421

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