Skip to main content

Advertisement

Advertisement

China eases rules on foreign banks

BEIJING — China has loosened market access restrictions on foreign banks, in a largely symbolic move to make good on promises to open the country’s domestic financial sector to competition.

The HSBC headquarters building in the Pudong financial district in Shanghai. Foreign banks have long complained 
about regulations fettering their growth in China. PHOTO: REUTERS

The HSBC headquarters building in the Pudong financial district in Shanghai. Foreign banks have long complained
about regulations fettering their growth in China. PHOTO: REUTERS

BEIJING — China has loosened market access restrictions on foreign banks, in a largely symbolic move to make good on promises to open the country’s domestic financial sector to competition.

The Cabinet decreased the waiting period for foreign banks to apply to conduct yuan business from three years after establishing operations in China to one year and dropped the requirement that a bank be profitable for two consecutive years before applying for a yuan licence.

Foreign banks without a yuan licence are limited to conducting foreign currency business.

Foreign lenders have long complained about regulations fettering their growth in China, where they controlled only 1.7 per cent of total banking assets at the end of last year, official data showed.

In its announcement of the rule changes over the weekend, the Cabinet referenced the landmark economic reform blueprint that top Communist Party leaders endorsed in November last year, which pledged to “expand the openness of the financial sector and deepen the openness of the banking industry”.

In practical terms, however, the change, which takes effect on Jan 1, may do little to improve the fortunes of foreign lenders.

Almost all of the world’s biggest banks have long since fulfilled the waiting period and obtained yuan licences.

A request to eliminate the three-year waiting period for obtaining a yuan licence was included in a long list of recommendations in the European Chamber of Commerce’s 2014 position paper on the banking sector. It does not appear in the United States Chamber of Commerce’s latest White Paper.

The Cabinet also eliminated a requirement that foreign banks transfer a minimum amount of operating funds from their head office in China to each new bank branch opened in the country. That requirement is not mentioned in either the Europe or US position papers.

In the lead-up to China’s joining the World Trade Organization in 2001, many domestic bankers and regulators were worried that highly competitive foreign banks would swamp domestic institutions.

However, a myriad of restrictions on funding sources, branch openings and acquisitions ensured that did not happen.

Many foreign bankers have now resigned themselves to playing a small role in China’s domestic market.

Instead, they use their local offices mainly as a platform to serve foreign clients in the country, while working to gain business with Chinese firms and rich individuals with overseas fund-raising and wealth management needs.

The top items on the US and European Union chamber wish lists include greater freedom to fund themselves through overseas parents, easier approval for new branch openings and elimination of foreign ownership restrictions in securities companies, fund management companies and local commercial banks. The Financial Times

Read more of the latest in

Advertisement

Advertisement

Stay in the know. Anytime. Anywhere.

Subscribe to get daily news updates, insights and must reads delivered straight to your inbox.

By clicking subscribe, I agree for my personal data to be used to send me TODAY newsletters, promotional offers and for research and analysis.