A revised administrative rule that is likely to be completed
soon by China’s banking regulators will allow foreign banks to deal
with renminbi retail business around the country.
The draft rule will need further approval from the State
Council, a source who declined to be named, said yesterday.
Foreign banks will be encouraged to register corporations in
China instead of setting up branches to deal with renminbi business
in order to protect the interests of domestic depositors, according
to the revised rule. The minimum registered capital of a foreign
banking corporation is said to be around US$125 million.
"The new rule will allow foreign banks to choose a diversified
presence in the country, and a foreign banking corporation
registered with the local administration will enjoy much more
favorable treatment than a branch of a foreign bank,"?the
source explained. ?
The rule is likely to identify US$125,000 as the minimum amount
for foreign bank branches wanting to collect deposits from local
residents' accounts while a foreign banking corporation is not
likely to face restrictions and will be able to deal in all types
of renminbi business.?
Since foreign banks will be able to deal in renminbi with local
residents by the end of 2006 it's?important that they are
registered locally to protect the interests of domestic depositors
and maintain the security of the country's financial system, said
an analyst. This practice is more in line with the global system
and is accessible to local supervision, he added.
Foreign banks, which currently deal with renminbi business in 25
cities, will be allowed to expand across the country and extend
their client base from enterprises to local residents at the end of
2006 under the revised draft rule.
The revision is part of China's push to achieve its WTO
commitment in banking, which is scheduled to open up completely to
foreign capital at the end of this year.
The new rule will also encourage foreign banks to expand their
business in China's middle and western regions. Foreign banks
expanding their renminbi business in these areas will be given
preference in entering the market.
At the end of April, 72 foreign-funded banks from 21 countries
had set up 182 branches and 14 banking corporations in China. Total
assets of foreign-funded banks have hit US$94.1 billion, accounting
for 1.9 percent of the country's financial institutions' total
banking assets.
A total of 101 foreign bank branches and six foreign banking
corporations were dealing in renminbi business in 25 Chinese cities
at the end of April.
However, foreign banks currently concentrate their business in
the country's eastern areas such as Shanghai, Shenzhen, Beijing and
Guangzhou. Shanghai has 30 percent of foreign banking
institutions.?
"Currently the competition between Chinese banks is very
intense," said Yi Xianrong, a researcher from the Chinese Academy
of Social Sciences. "I don't think that allowing foreign banks to
deal with renminbi business will have much impact on domestic
financial sector unless foreign banks choose to cooperate with
local banks, because local banks already have their nationwide
networks."?
However, some believe that the entry of foreign banks to the
sector could have a big impact on Chinese banks. The biggest
pressure could be on renminbi savings as foreign banks may "siphon
off" funds from local banks that have grown by an annual average of
2 trillion yuan (US$246 billion) in recent years. ?
Shi Jiliang, former vice chairman of the China Banking
Regulatory Commission, said in March it was likely that a number of
the smaller banks could lose clients to foreign banks.
But, he added, as foreign banks normally only focused on
high-end clients there wouldn't be a mass withdrawal of savings in
the initial period after liberalization.
Chinese banks would need to improve their competitiveness by
accelerating reform and improving their services to be able to
withstand the impact, he said.
(China Daily June 21, 2006)