Domestic and overseas banks in China are girding up in anticipation of full competition in the banking sector from Dec.11 this year.

 

With little more than three months to go, domestic banks on the Chinese mainland have been stepping up adjustment efforts designed to maintain their advantage after Dec.11 when the country's banking sector will be fully open, said information from China Banking Regulatory Commission (CBRC).

 

Measures taken by China's "Big Four" State-owned commercial banks -- Bank of China (BOC), the Industrial and Commercial Bank of China (ICBC), the Agricultural Bank of China (ABC) and China Construction Bank -- to prepare for the deadline include write-offs of non-performing loans using funds provided by the State, introduction of foreign strategic investors and ownership changes involving the establishment of new joint-stock companies or going public.

 

BOC and China Construction Bank have already successfully listed on stock exchanges, while both ICBC and ABC have made detailed plans for going public even if the schedules have not yet been announced.

 

In accordance with China's World Trade Organization commitments, all banking institutions in the country will be allowed to offer services in all areas and all currencies starting Dec. 11.

 

Industry observers believe that retail financial services, up till now dominated by Chinese banks in both the Chinese local currency yuan and in hard currencies, will be the focus of competition.

 

More than 238 overseas financial institutions do business in Chinese mainland cities. They include Citibank, Hang Seng Bank and Hongkong & Shanghai Banking Corporation (HSBC) Holdings PLC.

 

Raymond Or, vice-chairman and chief executive of Hang Seng Bank, which is headquartered in Hong Kong, said they looked forward to the time when all banking entities would operate on an equal footing.

 

To gain an edge in the upcoming open competition, Hang Seng Bank has bought a stake in Xingye Bank, a local bank in east China's Fujian province that is one of several regional banks authorized to operate outside its geographical area.

 

The Hong Kong-based bank, which has 14 branches in eight Chinese mainland cities, has decided to invest a further billion yuan to boost its mainland network to 30 branches over the next three years.

 

Richard D. Stanley, CEO of China Citigroup Inc., said an adaptation period was necessary before full competition began, but opening the banking sector in China would provide Chinese companies and citizens with more choice and better services.

 

Currently, 103 overseas bank branches on the mainland are allowed to offer yuan services to Chinese corporate entities. Retail services to Chinese mainlanders are still off-limits for overseas banks.

 

Overseas banks have registered bigger growth in their yuan business than in hard currency banking.

 

Statistics released by the Shanghai Banking Regulatory Commission show that the yuan business of overseas banks in Shanghai, China's financial hub, has risen 27 percent over the last six moths to reach 144.85 billion yuan (about US$18.11 billion).

 

Yuan loans accounted for 70 percent of the increase in overseas banks' lending by the end of the first semester, according to the Shanghai Banking Regulatory Commission.

 

An official with Guangzhou City State Taxation Bureau concluded, based on taxes levied on overseas banks in the city, that their yuan business now represents 40 percent of their total business volume, compared with just 10 percent last year. Guangzhou is a booming city in south China.

 

Guangdong, one of the country's economic powerhouses, now houses 61 ventures set up by 47 overseas financial organizations from 19 countries and regions, according to Meng Jianbo, deputy director of the Guangdong Provincial Banking Regulatory Bureau.

 

Overseas banks in Guangzhou coughed up 41.66 million yuan (about US$5.21 million) in income taxes from financial services in the first seven months of the year, compared with 8.63 million yuan (about US$1.08 million) for the same period last year, according to the official.

 

16.68 million yuan of the tax take came from yuan services offered to Chinese enterprises, a huge jump over the 880,000 yuan netted for the same period last year.

 

CBRC has been soliciting opinions about a proposal for administering overseas banks in China post-Dec.11, sources from the banking regulator said.

 

The CBRC proposal stipulates that all overseas banks should re-register as locally incorporated entities, with registered capital of one billion yuan (about US$125 million) each, if they wish to offer yuan services to individual residents on the Chinese mainland, according to the sources.

 

(Xinhua News Agency August 24, 2006)