Rule drafted for foreign lenders
By Zhang Ran (China Daily)
Updated: 2006-06-21 08:45 The new rule will also encourage foreign banks to expand their business in
China's middle and western regions. Foreign banks expanding their renminbi
business in these areas will be given preference in entering the
market.
At the end of April, 72 foreign-funded banks from 21 countries
and areas have set up 182 branches and 14 banking corporations in China. Total
assets of the foreign-funded banks hit US$94.1 billion, accounting for 1.9 per
cent of financial institutions' total banking assets.
A total of 101
foreign bank branches and six foreign banking corporations were allowed to deal
in renminbi business in China's 25 cities at the end of April.
However,
foreign banks currently concentrate their business in the country's eastern
areas such as Shanghai, Shenzhen, Beijing and Guangzhou. Shanghai has 30 per
cent of foreign banking institutions, which account for 55 of their total
business revenue.
"Currently the competition between Chinese banks is
very intense. I do not think that allowing foreign banks dealing with renminbi
business will have much more impact on the domestic banks unless foreign banks
choose to co-operate with local banks, because local banks have already built a
nationwide network across the country," said Yi Xianrong, a researcher from the
Chinese Academy of Social Sciences.
However, some believed that the
entrance of foreign banks into the sector would have a big impact on Chinese
banks. The biggest impact will be on renminbi savings, as foreign banks are
likely to siphon off some of the money, which has grown by an annual average of
2 trillion yuan (US$246 billion) in recent years from local banks.
Shi
Jiliang, former vice-chairman of the China Banking Regulatory Commission, said
earlier in March that it was likely that a number of the smaller banks might
lose clients to foreign banks.
But, he added, as foreign banks only
focus on high-end clients, there would not be an exodus of savings deposits in
the initial phase after liberalization.
Chinese banks would need to
improve their competitiveness by accelerating reform and improving their
services to be able to withstand the impact, he said.
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