Deng Chun, vice-president of Bank of Communications, said he expects "there will be more co-operation than competition" between foreign and domestic banks.

However, analysts pointed out that foreign banks might encounter conflicts in their business strategies. In recent years, international banks have become strategic investors in Chinese banks. Now, they will be in direct competition with those banks.

HSBC, which holds a 19.9 per cent stake in Bank of Communications (BoCom), helped the Chinese bank establish a credit card centre in October 2004.

Now, as the foreign bank expands its own network in the country, analysts worry HSBC will siphon clients away from the card centre.

"I'm afraid with HSBC's expanding of its own operating branches in China it is not likely to share its clients with BoCom, especially from the high-end clients," said She Minhua, a banking analyst at CITIC China Securities.

Shanghai is 'the first choice'

With yesterday's announcement, Shanghai is expected to get the largest benefit from foreign banks locally incorporating.

Foreign banks currently concentrate their business in the country's eastern areas such as Shanghai, Shenzhen, Beijing and Guangzhou.

Statistics from the CBRC shows the number of foreign bank branches and bank corporations in Shanghai totalled 60. The overall number of foreign banks and non-bank financial institutions have reached 103 in the city.

Shanghai has 30 per cent of all foreign banking institutions, which accounts for 55 per cent of its total business revenue.

Now, Citibank, HSBC, Standard Chartered Bank, Bank of East Asia, and Hang Seng Bank all said they were considering setting up headquarters in the country's largest city.

Some foreign firms have expressed concerns that incorporation in Shanghai may take a long time due to complex legal procedures.

In response, the local government established a special financial office to help foreign banks efficiently incorporate.

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