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China eases rules for foreign banks
From the Financial Times of Sun, 21 Dec 2014 07:47:32 GMT
A worker of an Industrial and Commercial Bank of China Ltd (ICBC) branch counts money as she serves a customer in the China (Shanghai) Pilot Free Trade zone during a media trip on September 24, 2014. Concerns over China's economy -- a key driver of global growth -- have intensified following a string of lacklustre recent data, with economists calling for authorities to take further action to kickstart growth. AFP PHOTO / JOHANNES EISELE (Photo credit should read JOHANNES EISELE/AFP/Getty Images)©AFP

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 renminbi 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 renminbi license. Foreign banks without a renminbi license 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 2013, according to official data.

In its announcement of the rule changes on Saturday, the cabinet referenced the landmark economic reform blueprint that top Communist party leaders endorsed in November 2013, 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 take effect on January 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 renminbi licenses.

A request to eliminate the three-year waiting period for obtaining a renminbi license 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 US 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 Organisation in 2001 many domestic bankers and regulators worried that highly competitive foreign banks would swamp domestic institutions. But a myriad of restrictions on funding sources, branch openings and acquisitions ensured that didn’t 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 fundraising and wealth management needs.

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

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