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Senior representatives of about 30 overseas banks met with China's banking industry regulator yesterday to discuss concerns over the draft administrative rule on foreign banks.

 

The China Banking Regulatory Commission sent the proposed rule on the opening up of the banking market at the end of this year to a group of foreign banks last week for review, sources said.

 

The draft rule encourages foreign banks to locally incorporate their businesses, instead of setting up branches, to offer renminbi business to Chinese residents.

 

And the minimum registered capital for a foreign banking corporation will be set at 1 billion yuan (US$125 million).

 

"I believe the regulator's initiative is in line with international practice rather than setting restrictions on foreign banks' business expansion on the mainland," said Raymond Yu, general manager of Bank of East Asia and head of the bank's China Division.

 

He cited the example of Hong Kong-based Bank of East Asia, which has registered corporations in the United States and Canada, where branches of foreign banks are not allowed or are limited to certain businesses.

 

"Local incorporation is good for supervision a branch is more difficult for supervisors to control risks than a subsidiary," he told reporters at the bank's seminar on Tuesday.

 

However, he refused to comment further on the draft regulation. "We've received the document about eight to 10 days ago and we would exchange views with the regulator," he said.

 

Most of the banks would not comment on the issue, saying it is not the right time as the rule has not been finalized.

 

They are waiting for the final version and will adjust their businesses on the mainland accordingly.

 

Media reports said foreign banks are concerned the new rule stipulates that fixed deposits taken from local residents by qualified foreign banks must be more than 1 million yuan (US$125,000).

 

Zhao Xijun, a finance professor from the Renmin University of China, said that some foreign banks may not like it, but it is in the best interests of industry supervision.

 

"It is important for regulators to protect the interests of domestic depositors and maintain the security of the country's financial system, since China is going to open the banking sector," Zhao said.

 

Currently, a total of 103 foreign bank branches and seven out of the 14 foreign banking corporations are allowed to deal in renminbi business with corporate clients in 25 cities.

 

According to China's WTO commitment, foreign banks will be allowed to expand across the country and extend their clients from enterprises to local residents at the end of 2006.

 

In some foreign countries, the well-established deposit insurance system could protect depositors' interests if any banking institution has operational risks or goes bankrupt.

 

However, China has not established such an insurance system and therefore stricter supervision and higher entrance requirements are needed, Zhao said.

 

(China Daily August 24, 2006)