China’s top banking regulator played Santa Claus to foreign banks weeks before Christmas last year, announcing measures that gave them greater access to the local market.

Lui Mingkang, chairman of the China Banking Regulatory Commission (CBRC), said on December 1 that foreign banks could operate with lower capital requirements and do more local-currency business. He also raised the ceiling on foreign ownership of domestic financial institutions.

These measures were largely expected as they are listed in a detailed market-opening schedule that China is required to follow as a member of the World Trade Organisation. By 2006 foreign banks are expected to have full market access.

Nonetheless, Mr Liu, moving slightly ahead of the schedule, has won goodwill and confidence from foreign banks anxious to expand as fast as possible.

The new measures are:

  • As from 1 December 2003, foreign banks are allowed to conduct renminbi business with local companies. Previously, they could do only foreign exchange (FX) business with them.
  • Foreign financial institutions will need to put up a minimum Rmb500m (US$72m) to set up a full-service branch, down from Rmb600m.
  • The number of cities where foreign banks can do renminbi business has been expanded to 13 from 9.
  • The ceiling on foreign ownership in Chinese financial institutions for a single investor has been raised to 20% from 15%. Total foreign ownership however cannot exceed 25% for any Chinese financial enterprise.

Mr Liu hailed these policies as “another milestone in the opening of China's banking sector”. Industry observers, however, doubt if they will boost the business of foreign banks quickly. During the past year foreign banks lost market share despite greater market access, due to the aggressive expansion of rival Chinese banks that wanted to reduce their bad-loan ratios by making new loans.

In FX lending, in which foreign banks did well, their market share had dropped to 7.4% at end-2002 from 15% at end-2001. In the first 10 months of 2003 their share bounced back to 13%. In total, foreign banks accounted for a meagre 1.1% of China's financial assets in 2002.

By end-October 2003, there were 62 foreign banks operating 191 outlets in China, 84 of which could conduct local-currency business.

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