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Rules for Foreign Exchange Adjusted

China will soon adjust regulations for selling and payment of foreign exchange by foreign banks to place them on an equal footing with domestic banks, a senior foreign exchange official said yesterday.

A draft of the new rules has been completed and the formal version would come out very soon, said Zhou Lin, deputy director of the Balance of Payment Department of the State Administration of Foreign Exchange (SAFE).

After the amendment, foreign banks in China would be allowed to provide foreign exchange buying and selling services to non-foreign funded enterprises in the country.

In doing this business, they will have to observe the same regulations followed by domestic banks and they will have the same responsibilities as well, Zhou said.

Under the existing exchange system in China, foreign banks are limited to buy and sell foreign exchange with foreign-funded firms.

Chinese firms are required to sell their foreign exchange earnings to designated domestic banks.

"The establishment of a unified system for all banks authorized to provide foreign exchange settlement and payment services in China is in response to the changes that will come when China joins the World Trade Organization (WTO),'' said Zhou, at the China Money and Investment Summit 2001 held yesterday in Beijing by Marcus Evans, a world-leading conference organizer.

To fit in with the changes, the central bank will also revise the comprehensive regulations on foreign financial institutions this year.

It is expected that these changes will expand the overall business and customer scale of the foreign banks to accord with China's WTO commitment.

China has pledged to allow foreign banks to do renminbi business with Chinese firms two years after it joins the WTO and to offer private banking services to domestic Chinese customers after five years.

In line with the expected business expansion of foreign banks, China will also amend the way of calculating foreign debt, said Zhou.

Borrowing by domestic institutions from foreign banks in China will no longer be regarded as foreign debt but be counted as foreign currency loans within the country.

Offshore borrowing by foreign banks and internal transfer with their headquarters will be classed as foreign debt.

For foreign banks, business opportunities are enormous in China.

"We will see the next wave of foreign bank entry to China after it joins the WTO, which is likely to come within the year,'' said Peter de Jong, Manager of the Treasury Department of the Shanghai Branch of CommerZ Bank in Germany.

The toughest competition will be in the renminbi business, Jong said.

Many foreign banks will have to readjust their business strategy if they want to seize these opportunities, he said.

(China Daily 04/03/2001)

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