China's door now wide-open for foreign banks
By Chuan Yu (China Daily)
Updated: 2004-08-05 11:10

Chinese financial authorities' newly-announced policy loosening restrictions on foreign banks indicated the Chinese Government's commitment to opening up the sector and will increase their growth in the local market, analysts said.

Foreign bank signs are displayed in Shanghai, China's financial hub. The China Banking Regulatory Commission published revised rules on the administration of foreign financial institutions on Tuesday, reducing capital requirements for their local currency operations and simplifying entry requirements. [newsphoto file]

The liberalization moves, which include lowered capital and branching requirements as well as simpler regulatory approval procedures, come sooner than the commitments made by the nation upon its accession into the WTO more than two years ago.

"This demonstrates a more open stance of Chinese regulators," said Wang Yuanhong, a senior analyst with the State Information Centre.

"But we should note that supervision is also strengthened, which meets the regulatory needs when more foreign banks enter the market," he added.

The China Banking Regulatory Commission (CBRC) published revised rules on the administration of foreign financial institutions on Tuesday, significantly reducing capital requirements for their local currency operations and simplifying entry requirements.

According to the new rules, which will replace the older version introduced two years ago and take effect on September 1, the capital requirements for foreign bank branches' corporate and retail renminbi business with Chinese clients are reduced to 300 million yuan (US$36 million) and 500 million yuan (US$60 million) respectively from 400 million yuan (US$48 million) and 600 million (US$72 million) previously.

The new version also excluded a key clause in the old rules which required foreign banks to open no more than one branch within a year.

The reason for reducing capital requirements for foreign banks is to "appropriately reduce foreign banks' operating costs in China and promote their healthy growth," while effectively preventing and containing business risks at foreign banks, a CBRC spokesman said.

The new rules indicated a further step in the opening of China's banking industry and its regulatory regime for foreign financial institutions, he said.

The new rules govern locally-registered foreign banks, local branches of overseas-incorporated banks, Sino-foreign joint venture banks as well as foreign or joint-venture financial companies.

One hundred foreign banks, or half of all the foreign banks operating in China, had been allowed to conduct renminbi business, the CBRC said late last month.

Fifty-three of them have won approval to provide renminbi services to Chinese enterprises, only a few months after China gave the green light at the end of last year. The rest of them can provide renminbi services only to foreign-invested companies.

According to China's WTO commitments, foreign banks are not allowed to provide local currency services to Chinese individuals until the end of 2006.

Foreign banks' renminbi-denominated assets totalled 84.4 billion yuan (US$10.2 billion) at the end of June this year, up 49 per cent on a year-on-year basis, the CBRC said.

The commission's new rules also added supervision requirements and endowed banking regulators with disciplinary authority over foreign banks.

Regulators can, in the event of impropriety, require banks to report on certain issues regularly and impose restrictions on their operations and fund flows.

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