CSRC implements commitments in CEPA Supplement X to open up the securities market to Hong Kong and Macao investors

The policy clarified

On 21 August 2015, CSRC announced the criteria to be met by Hong Kong and Macao investors in order to be eligible to invest in securities companies under the special regime provided in Supplement X of the Closer Economic Partnership Arrangements between Mainland China and Hong Kong and Macao respectively, which were signed in August 2013 (collectively, "Supplement X").

To recap, Supplement X enables eligible Hong Kong-funded and Macao-funded financial institutions to (i) set up one full-licensed joint venture securities company in each of Shanghai, Guangdong and Shenzhen with the Hong Kong/Macao shareholding capped at 51 per cent., (ii) set up one full-licensed joint venture securities company in certain government-approved experimental zones for "piloting financial reforms" with the foreign shareholding capped at the normal level of 49 per cent. which generally applies under national rules, and (iii) hold an increased maximum shareholding of 50 per cent. in securities investment consultancy joint ventures in the same experimental zones.

CSRC has now clarified that the following criteria must be met by Hong Kong investors and will also be used as a point of reference in the assessment of Macao investors seeking to invest under Supplement X:

  • the investor must be a licensed financial institution or financial holding company registered in Hong Kong with its headquarters located in Hong Kong;
  • if the investor’s controlling entity is a financial holding company or financial institution, one of the following additional criteria must be met: (i) the controlling entity is registered and has its headquarters in Hong Kong; (ii) the investor’s shares are listed in Hong Kong, with at least 50 per cent. of its pre-tax profits in the past three years derived from Hong Kong or at least 50 per cent. of its senior management being Hong Kong permanent residents; and (iii) the controlling entity’s shares are listed in Hong Kong, with the investor accounting for at least 50 per cent. of its revenues or pre-tax profits.

In addition to Supplement X, the Hong Kong/Macao investor also needs to comply with the requirements of CSRC which apply under the national rules to foreign investors in securities joint ventures, including a 5-year operating track record which generally needs to include at least 5 years in a regulated sector.

There had been speculation in the market that non Hong Kong/Macao investors would benefit from a similar policy in China’s free trade zones. However, no official news or timetable for this further liberalisation has been released.


CSRC’s announcement has, to a certain extent, provided clarity on what it means to be an eligible "Hong Kong/Macao" investor under Supplement X such that, for example, it is now clearer that the Hong Kong subsidiary of a US or European headquartered financial institution would not be able to invest under Supplement X.

Non Hong Kong/Macao investors should also take into account the requirements outlined by CSRC in considering how best to structure an investment under Supplement X. For example, existing corporate chain structures could be re-evaluated such that any Hong Kong/Macao financial institution within the group that would otherwise be eligible under Supplement X is headquartered in Hong Kong and is not controlled by a non Hong Kong/Macao financial institution, and a non Hong Kong/Macao entity that is not a financial institution could consider acquiring an eligible Hong Kong/Macao financial institution to make an investment under Supplement X.

It is also worth bearing in mind that for investments in securities joint ventures under Supplement X, the Chinese partners no longer have to be domestic securities companies (which may make potential competition between the foreign and domestic partners a less hotly negotiated issue) and in the experimental zones, effective control by the 49 per cent. foreign shareholder is possible if there are multiple Chinese shareholders with small stakes, as the requirement of the national regime for a single Chinese shareholder to hold a stake of at least 49 per cent. does not apply.


Implementing Relevant Policies in Supplement X to CEPA and Further Opening Up Securities Operation Businesses (落实CEPA补充协议十有关政策进一步扩大证券经营机构对外开放), China Securities Regulatory Commission ("CSRC")