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SAN FRANCISCO - China Merchants Bank Co., Ltd., China's sixth-largest lender, has applied to U.S. banking authorities to open a New York branch that would allow it to make loans and take commercial deposits. The go-ahead could open the door to other Chinese mainland banks after a 15-year dry spell.

Headquartered in the booming free-trade hub of Shenzhen and listed in Hong Kong and Shanghai, China Merchants Bank has filed a branch application with the Federal Reserve Bank of New York, according to documents made public late last month.

Approval by the Federal Reserve, which acts as a bank regulator in the United States as well as a monetary authority, would mark a turning point for Chinese mainland banks and their efforts to build up business in the world's largest financial market.

"This is a real watershed application," said Henry Fields, a partner at Morrison & Foerster LLP in Los Angeles and an attorney who has helped foreign banks establish branches and buy banks here.

"If this application gets approved, it's very possible that we'll see a very significant follow-on of Chinese banks setting up commercial banking operations in the United States, including buying U.S. banks," said Fields, who is not involved in the China Merchants application.

That would be a similar scenario to the one that played out in the 1980s when Japanese banks, following their corporate customers to the United States, set up branches and eventually acquired banks like the Bank of California - now part of San Francisco's UnionBanCal Corp. At one point, Japanese banks controlled about one-fifth of California's banking assets.

Now banks from China, whose enormous export engine has made the country's manufacturers flush with U.S. dollars, are looking to open U.S. branch operations where they can directly access cash markets and finance their clients' U.S. expansion in the local currency.

Some Chinese companies have already started to expand in the United States, though merger activity is still slight and has dampened since Chinese oil company CNOOC Ltd. abandoned a takeover bid for California's Unocal in 2005 after a howl of protest from Washington lawmakers. Last year, Chinese companies announced four U.S. acquisitions worth $25 million, according to Dealogic.

China Merchants, which is part-owned by a Chinese government transportation company, is one of several banks to have made successful Hong Kong stock market debuts in the last year. Run by former central bank official Ma Weihua, the 20-year-old bank now controls one-third of China's credit-card market and has stocked its domestic branches with deposits from affluent Chinese consumers. 

It wouldn't be the first Chinese mainland bank to make loans and take deposits in the United States. By 1991, the Bank of China Ltd. and the Bank of Communications had opened branches in New York.

But the 1991 Foreign Bank Supervision Enhancement Act passed after U.S. and British regulators uncovered a massive, cross-border scheme involving money laundering and fraud by Pakistan's Bank of Credit and Commerce International (BCCI) - raised the bar for any new bank entrants to the United States.

The new regulations, which handed oversight of new foreign bank applicants to the Federal Reserve and required it to review the quality and scope of the parent bank's home-country regulator, effectively shut out Chinese banks from setting up new branch offices here. Some, including China Merchants, did win federal approval to open representative offices. But these operations, which typically employ less than five people, can't engage in such key banking functions as making loans.

Changes over the past 10 years within China's bank regulatory system likely have given confidence to China Merchants' managers to apply for a branch. Foreign banks usually do not submit applications to Federal Reserve officials until they have thoroughly discussed the plan with them and have reasonable assurances it will succeed, say banking experts.

Representatives from China Merchants' New York office declined to comment for this story.

In order to approve China Merchants' application, the Federal Reserve has to determine that the bank's parent is subject to the proper supervision by its home country regulators - in this case, the China Banking Regulatory Commission. The institution was established in 2003 to clean up the country's bad loans and prevent bank risks.

If the Federal Reserve finds that China Merchant is subject to what regulators call "comprehensive, consolidated supervision," from its home country regulator, that will clear one key hurdle for all would-be Chinese entrants to the United States.

And approval could also change the landscape for U.S. banks that have grown quickly by financing Chinese-American businesses on both U.S. coasts.

Three Chinese-American banks - Cathay General Bancorp, East West Bancorp, Inc. and UCBH Holdings, Inc. - "could be attractive to the giant  Chinese mainland banks that have recently gone public, and/or to the regional Chinese banks that are planning to go public," Citigroup analyst Michael Diana wrote in a note.