New regulations on the administration of foreign-funded banks took effect on Monday, marking the full opening of the country's banking sector to foreign competitors.
Under the regulations, China will allow foreign-funded banks to conduct Renminbi business for Chinese citizens in line with its commitments to the World Trade Organization (WTO).
The Chinese government is encouraging foreign banks to incorporate locally and set up subsidiaries to minimize risks for Chinese customers.
Foreign banks that continue to run their Chinese operation as branches operated from overseas will find that the range of services they can offer customers will be restricted.
China's banking watchdogs said that the stipulation is in line with international practice. When liquidity risks occur, domestic customers should be 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 risks and ensure domestic financial stability, they said.
The policy favoring Chinese corporate status also complies with WTO rules, which allow 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.
So far eight foreign-funded banks including Citibank, the Bank of East Asia, the Hong Kong and Shanghai Banking Corp., the Hang Seng Bank and Standard Chartered Bank, have applied to the Chinese government to transform their branches into locally incorporated banks registered in China.
From Monday, the Chinese government will remove regional and other restrictions on foreign-funded banks, treating them the same as Chinese banks.
The regulations state that Chinese branches of foreign banks are banned from engaging in Renminbi services with Chinese citizens unless an individual, with the approval of the banking regulatory body, makes a fixed minimum deposit of at least one million yuan (US$127,000).
Foreign-funded banks can now sell insurance products just like domestic banks, and the government will apply the same standards covering registered capital, operating funds, information disclosure and affiliated deals to both domestic and foreign banks.
Since joining the WTO in 2001, China has seen the number of foreign-funded banks grow and their business scope expand.
China has fully opened its foreign exchange business to foreign-funded banks and allows 111 foreign financial institutions to offer Renminbi services for Chinese and foreign enterprises in 25 cities.
Data from the China Banking Regulatory Commission shows the assets of foreign-funded banks in China totaled US$105.1 billion in September, accounting for 1.9 percent of all banking institutions in the country.
(Xinhua News Agency December 12, 2006)