Introduction to Foreign Investment in the Security Industry

The opening up of the securities industry and securities market are two different concepts. Opening the securities industry involves allowing foreign-service suppliers to participate in security operations according to the World Trade Organization (WTO) agreement concerning the service trade. More specifically, it means permitting foreign-service suppliers, such as agents, provide services to Chinese people who invest in stock exchanges using Chinese currency. This service does not touch on the cross-border flow of capital except for registered capital. Opening the securities market means foreign investors can buy Chinese domestic securities, which incites the flow of cross-border capital.

With respect to the opening up of the securities market, China has adopted the following measures: issuing international bonds and B stocks and encouraging enterprises to get listed on overseas stock markets.

1. International bonds issue:
In January 1982, the China International Trust & Investment Corp (CITIC) launched an initial public offering on the international capital market and successfully offered privately raised international bonds worth 10 billion Japanese Yen. Later, the CITIC, Bank of China, Communication Bank, Construction Bank, the Ministry of Finance and Shanghai International Trust & Investment Corp issued bonds in Tokyo, Hong Kong, Singapore, London and Frankfurt more than 10 times. At present, the bonds issued by China include overseas bonds, bonds of fixed and changeable interest rates and convertible bonds, as well as privately and publicly raised bonds, forming an all-round, multi-leveled financing channel.

2. B-shares issue:
In February 1992, the B stock market came into being and B shares on Shanghai stock exchange reached a record 140.85 points in May. On August 18, 1993, the Standard Chartered Bank, Credit Lyonnais, San Hung Kai Bank Ltd, Crosby Securities Ltd and Fbi Securities Ltd became the first franchised brokers on the Shenzhen stock exchange.

On November 2, 1995, the Standing Committee of the State Council passed the Regulations of the State Council on Foreign Capital Stocks of Joint-stock Companies Listed in China, which marked the birth of the first national B-stock law. Starting from June 1, 1999, the State Council decided to cut the B-stock stamp tax from 4 per every 1,000 to 3 per 1,000. Meanwhile, the China Securities Regulatory Commission (CSRC) promulgated a circular concerning the issuing of B stocks by enterprises, noting that any enterprise (regardless of the owner) can issue B stocks.

In 2000, the CSRC released two circulars: one is the Circular about the Issuing of New Stocks, which permits companies with foreign- and domestic-capital stocks issue new A stocks in advance and the Circular of Domestic-Listed Companies with Foreign Capital Stocks Concerning Non-Listed Foreign-Capital Stocks Circulating on the Chinese Market, which permits companies with B stocks that were joint ventures before they launched IPOs to partake in the capital circulation. In February 2001, the CSRC allowed Chinese residents open B-stock accounts using legitimate foreign currency. By the end of March 2001, B-share subscribers on the Shanghai Stock Exchange totaled 600,600; the figure in Shenzhen was 389,400.

3.Listing domestic enterprises on overseas stock exchanges.
In June 1993, the CSRC and Joint-Stock Exchange of Hong Kong jointly signed the Cooperation of Securities Supervision between China and Hong Kong, which set a legal foundation for Chinese mainland-funded enterprises listed on the Hong Kong SAR market. On June 29, 1993, Tsingtao Brewery Ltd issued an introduction on raising shares in Hong Kong and was listed on the H-share Joint-Stock Exchange of Hong Kong on July 15.

By 2000, listed among the top 20 companies with the highest market prices, China Mobile, China Unicom and Legend Group placed second, seventh and 20th respectively with respective total share values of HK$792.586 billion, HK$150.008 billion and HK$36.625 billion, which accounted for 16.53, 3.13 and 0.76 percent of the total share value respectively.

In October 1999, Brilliance China Automobile Co of Shenyang Gold-Cup Automobile Holdings Co successfully launched an IPO of N stocks in the New York Stock Exchange to become one of the most active stocks in NYSE. In addition, Chinese enterprises tried to launch a second public offering of H, N and B stocks on overseas stock exchanges.

In recent years, measures aimed at encouraging enterprises to get listed on overseas stock markets emerged one after the next. On July 20, 1999, the CSRC put forward a circular permitting qualified State-owned enterprises, collective enterprises and the other joint-stock companies that came into being by restructuring their ownership to apply for an overseas listing.

With respect to the opening up of the securities industry, overseas security institutions generally establish their branches, representative offices and agencies in China or cooperate with Chinese-funded financial institutions to take part in the China's securities business to expand their business in Chinese marketplace.

A typical example of Sino-foreign cooperation was the establishment of the China International Finance Co Ltd, which was jointly set up by the Construction Bank of China, Morgan Stanley Capital International and three other financial institutions. On the other hand, the foreign-securities representative offices can progressively engage in investment consultations and the securities business as required under the administration of China securities authorities. For instance, on April 23, 1993, overseas securities companies were admitted into the B-share Shanghai market and Shenzhen Stock Exchange as special owners of B shares. Apart from taking part in the business of foreign capital stocks, foreign capital cooperating with Chinese capital can partake in the A-stock business.

Furthermore, in respect to securities funds, the CSRC issued Regulations Concerning Foreign Capital Taking Part in the Establishment of Securities Companies and Regulations on Foreign Capital Joining the Establishment of Fund Management Companies, issuing a detailed regulation about the conditions and ways, organizational forms, business scope, qualifications and ratio of overseas share holdings and procedures for approving foreign capital joining the establishment of securities companies and fund management companies. In October 2002, with approval from the CSRC, the first joint-stock fund-management company, the Guoan Fund Management Company, emerged from the joint efforts of the Guotaijun'an Securities Company and Allianz Group.

 

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