China further opens access for foreign banks

Foreign bank branches line Shanghai's Pudong Avenue. China will widen the opening-up of its financial sector by relaxing control over market access for foreign-funded banks, the State Council announced on Saturday. Yan Daming / for China Daily

China will widen the opening-up of its financial sector by relaxing control over market access for foreign-funded banks, the State Council announced on Saturday in its latest decision to revise regulations on the administration of such banks.

According to previous regulations issued in 2006, when a wholly foreign-funded bank or a Chinese-foreign joint venture bank establishes a branch in China, the branch shall receive from its parent bank a non-callable allocation of no less than 100 million yuan ($16 million) or an equivalent amount in convertible currencies as its operating capital.

That requirement on the amount of noncallable allocation of operating capital has been removed from the revised regulations, effective as of Jan 1.

In the past, a foreign bank should have maintained a representative office in China for more than two years before the bank applied to establish its first branch in the country. That restriction has also been removed, said officials from the Legislative Affairs Office of the State Council and the China Banking Regulatory Commission.

Zeng Gang, director of banking research at the Institute of Finance and Banking under the Chinese Academy of Social Sciences, said, "The revised regulations have lowered the threshold for foreign-funded banks to establish branches within China and relaxed rules on foreign banks to have access to certain business, which signifies that China is accelerating the opening-up of its banking sector."

Previously, branches of foreign-funded banks in China had narrow channels to replenish their capital from retained profits or capital injection by their parent banks, Zeng said. Capital injection is related to foreign direct investment and needs approval from multiple government departments, including the China Banking Regulatory Commission, the State Administration of Foreign Exchange and the Ministry of Commerce.

By removing the requirement for a branch to receive from its parent bank a noncallable allocation of no less than 100 million yuan, China will undoubtedly loosen capital restrictions on foreign banks, he said.

Wang Zhifeng, a researcher at Bank of China's Institute of International Finance, said: "The revision of the regulations is combined with the overall deployment of China's reforms to expand market access for foreign investment. It will attract foreign banks to enter the Chinese market based on their global strategy of development."

By the end of 2013, China had 42 locally incorporated foreign banks plus Sino-German Bausparkasse Co Ltd, the first Sino-foreign housing savings bank. The assets of foreign banks amounted to 2.56 trillion yuan, accounting for only 1.7 percent of the total assets of 151.4 trillion yuan in the Chinese banking sector.

China will also allow foreign banks to apply to conduct renminbi business more conveniently in a shorter time, officials said. Regulators also removed another requirement that foreign banks should have been profitable for two consecutive years before the application.

"Such revisions will help foreign banks bridge the use of renminbi in China and their home countries, increase the number of financial institutions using the currency, and spur the offshore renminbi market," Wang said.