SHANGHAI: The central bank is conducting feasibility studies on the concept of a Yangtze River Delta financial zone, focusing on regional banking service integration.

"We (the Shanghai and Nanjing branches of the People's Bank of China) will jointly work out a detailed theoretical study report on the topic by the end of the year," said Wang Xinxin, director of the policy studies department under the People's Bank of China.

He said the idea was raised as a way to fulfil the city's ambition of becoming an international financial hub and fuel economic integration.

The booming private sectors in Jiangsu and Zhejiang provinces also demand efficient integrated banking services, Wang added.

The delta region, with Shanghai at its centre, will propel the integration of banking services by gradually removing the policy and administrative barriers for the business operations of State and city commercial banks.

The big four State banks - the Industrial and Commercial Bank of China, the Bank of China, the China Construction Bank and the Agricultural Bank of China - now mostly offer separate services under administrative structures, with each branch restricted to its particular area of business.

And city commercial banks from different cities in the delta are not allowed to expand their services outside their business scope, usually within a city.

"We are now studying how to change this and feasible suggestions will be raised by the end of the year," Wang said.

The Yangtze River Delta, which embraces 15 major cities, is regarded as the country's largest economic bloc.

The delta region, which covers Shanghai and neighbouring Jiangsu and Zhejiang provinces, accounts for only 1 per cent of the national territory and contributes around one-fifth of the country's gross domestic product.

Under the financial zone concept, the delta region would aim to become a national centre for financial product research and development (R&D), as well as a centre for financial information and professionals, according to Wang.

Shanghai Municipal Government has supported the idea.

According to a recent statement by the Shanghai Financial Service Office, the city will "actively explore" feasible ways of realizing banking service integration in the delta region.

The statement, which does not give a timetable, notes it is a prerequisite for Shanghai's long-term goal of becoming a world-level financial hub.

Co-operation between local governments and bank regulatory authorities will take the lead in such a process, said the statement.

The office, directly under Shanghai Municipal Government, is responsible for planning the development of the local financial sector.

"There are several possible plans to restructure the local banking system under the financial zone concept," said Wang with the People's Bank of China's Shanghai branch.

The central government will be responsible for the formal approval of any scheme under the financial zone concept and will also control the timetable for implementation, he said.

A possible way out is to re-structure the big four State banks by establishing their regional headquarters in the delta area with reference to overseas-funded banks to provide integrated services locally, said Pan Zhengyan, a finance expert with the Shanghai Academy of Social Sciences, who joined the discussion on the concept organized by local authorities.

Other financial sectors like securities and insurance will follow the banking sector in achieving further integration, said Pan.

In addition, strong city commercial banks, such as the Bank of Shanghai, are also likely to get permission to expand their services to the whole delta region under the financial zone concept, Pan said.

A united banking regulatory platform and integrated financial information database for the delta region need to be established first, according to Pan.

And different city commercial banks and branches of the big four State banks are urged to strengthen business co-operation including financial product R&D and innovation, he said.

But local bank regulatory officials warned that implementation of the plans will be fairly difficult as they concern the local interests of different cities.

"It is not a one-step project," said Wang.

Shanghai, with the approval of the central government, aims to build itself into an Asia-Pacific financial centre by 2010 and become a world-class financial hub by 2020.

(Business Weekly 06/17/2003 page5)