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Foreign Banks Encouraged to Incorporate Locally
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A press conference was held on Thursday about the new regulations on foreign-funded banks, which were approved at the 155th executive meeting of the State Council last Wednesday.


Foreign banks encouraged to set up Chinese subsidiaries


The Chinese government is encouraging foreign banks to incorporate locally and set up subsidiaries to minimize risks for Chinese customers, a senior official said on Thursday.


China-registered subsidiaries will be corporate entities, said Song Dahan, deputy director of the Legislative Affairs Office of the State Council at a press conference.


If a foreign bank continued to run its Chinese operation as branches operated from overseas, the range of services it could offer customers would be limited, he said.


Song said linking the range of services a foreign bank can offer to its corporate status would help safeguard the interests of Chinese customers.


According to international practice, when liquidity risks occur, domestic customers are given priority in withdrawing funds. Chinese individuals who deposit money in branches operated from overseas could find their assets at risk if the parent bank experienced a crisis.


In a globalized world, financial risks can be passed from one country to another. But China-registered corporate entities, which are supervised by Chinese banking authorities, will take measures to minimize risk and ensure domestic financial stability, he said.


Song said the policy favoring Chinese corporate status complied with WTO rules, which allow its members to adopt measures of prudence when opening up the banking sector.


Prudent measures include policies that protect customers' interests, prevent risks to the bank and safeguard the stability of financial markets.


As of December 11, China will accept applications from foreign banks who wish to convert their branches into a locally incorporated bank.


"The Chinese government will do everything it can to facilitate the conversion process, which will take one to three months," said Wang Zhaoxing, assistant chairman of the Chinese Banking Regulatory Commission at the press conference.


Wang said he is confident the government departments involved -- the judicial department, the industrial and commercial administration, and the banking regulatory commission -- will work together in an efficient and well-coordinated manner.


The length of the conversion period also depended on the preparation work carried out by the foreign-funded banks, he said.


Wang said locally incorporated bank will not be regarded as new institutions. The date on which the foreign bank established its first branch in China will be regarded as the beginning of its period of operation.


He gave the example of a foreign bank that has been operating in China for five years. This bank can convert its branches into a locally incorporated bank after December 11, but this will not affect its period of operation which will still be deemed to be five years.



Total asset of foreign-funded Banks in China


The total assets of foreign-funded banks in China exceeded US$100 billion in September, the China Banking Regulatory Commission (CBRC) announced on Thursday.


In both Chinese and foreign currencies, the assets of foreign-funded banks in China were worth US$105.1 billion, accounting for 1.9 percent of the total assets of all banking institutions in China.


The CBRC released the figures in the run-up to the full opening of China's banking industry on Dec. 11, the fifth anniversary of the country's accession to the World Trade Organization (WTO).


CBRC figures show by the end of September, 14 foreign-funded or joint-venture banks were registered in China, with 17 subsidiary banks or other affiliated institutions.


The CBRC said 73 banks from 22 countries and regions had set up 191 branches and 61 sub-branches in 24 cities, and 183 banks from 41 countries and regions had set up 242 agencies in 24 cities.


By the end of September, 25 Chinese cities had opened Renminbi service to foreign-funded banks, and 111 foreign-funded banking institutions had been allowed to engage in Renminbi services.


Foreign-funded banks' Renminbi services had been growing at an average annual rate of 92 percent since the end of 2001 when China became a WTO member, the CBRC said.


Since 2001, China has taken a series of measures to gradually open its financial market, including introducing the QFII (qualified foreign institutional investors) scheme in 2003 to allow foreign institutional investors such as UBS, Deutsche Bank and Citigroup Global Markets Limited to engage in the securities business on the Chinese mainland.


So as to cope increasing challenges from foreign competitors, the country has been boosting forcefully the reform on its state-owned banks that were harassed by high non-performing loan ratios.


Now three of its four largest state-owned commercial banks have been listed on the stock market after overhauling reforms.


Foreign financial institutions encouraged to join China's commercial banks


Foreign financial institutions with good credit are encouraged to join China's commercial banks by share purchasing and equity participation, said Wang Zhaoxing, assistant chairman of the China Banking Regulatory Commission (CBRC). Wang said at the press conference held Thursday that the introduction of foreign strategic partners into Chinese banks has played a positive role in improving their risk management and financial innovation and in enhancing their competitiveness.


There are 25 foreign financial institutions taking shares in 20 large, medium and small sized commercial banks in China.


"The opening of China's banking sector is comprehensive and all directional," said Wang.


Wang said China will make dynamic and continuous evaluations on the investment of the foreign banks in Chinese banks.


The rules stipulate that an individual foreign financial institution can hold no more than 20 percent of shares in Chinese financial institutions and the ceiling for all foreign financial institutions is 25 percent.


Tax preferential treatment to foreign-funded banks


After the full openness of China's banking sector, China will continue to give tax preferential treatment to foreign-funded banks that have been locally incorporated.


Song Dahan, deputy director of the Legislative Affairs Office of China's State Council, made the remark Thursday when responding a question from the press.


"Those foreign-funded banks that have been locally incorporated and registered in China are still foreign-funded banks, so they will enjoy preferential treatment in income tax according to Chinese law," he said.


The Chinese government is thinking about the reform on current income tax system that differentiates Chinese and foreign-funded companies, he said.


At the same press conference, Wang Zhaoxing, assistant chairman of the China Banking Regulatory Commission, suggested that after foreign-funded banks fully receive national treatment in China, they should share the same taxation policy with domestic banks in taxation.


"Only in this way can the principle of fair competition be realized," Wang said.


Foreign banks to issue credit card in RMB


Foreign banks can issue credit cards in RMB after they become locally incorporated banks, said Wang Zhaoxing, assistant chairman of the China Banking Regulatory Commission (CBRC).


Wang Zhaoxing said at the press conference held on Thursday that the foreign banks are required to have good risk management, risk control system and IT support system to hedge risks in the issuance of credit cards in China.


Wang said the People's Bank of China, the central bank, will be responsible for the operation and management of the payment system.


Further details on the issuance of credit cards by foreign banks in China will be clarified in the credit card management regulations to be set soon.


(Xinhua News Agency November 16, 2006)


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