Despite suggestions to the contrary, China has been continuously deepening and broadening the opening-up of its banking sector

Foreign-funded banks have boomed on the Chinese mainland over the past decades, especially since China's accession to the World Trade Organization in 2001.

While playing an active role in bolstering China's rapid economic development, foreign-funded banks have also shared in the fruits of its rapid growth and enjoyed a big boost in the scale of their own assets and profits. However, some in the West doubt the achievements of foreign banks in China, citing the low proportion of their assets to the country's total banking assets.

Chinese mainland-based foreign banks accounted for 1.93 percent of the country's banking assets in 2011, only 0.11 percentage points higher than 2001. The proportion was 0.45 percentage points lower than the peak of 2.38 percent achieved before the global financial crisis. This is a low proportion whether in developed economies or in emerging nations. Some have also cast doubts on China's opening-up polices in the banking sector and its monitoring environment, arguing that foreign banks have encountered numerous policy restrictions and prejudice in China and the Chinese government has failed to grant them "real national treatment".

All these allegations are groundless. The low proportion of foreign banks in China's banking market does not contradict the fact that they have achieved sustainable and rapid development in the country. The number of both legal entities and subsidiaries foreign banks have set up in China has increased rapidly in recent years. By the end of 2011, some 98 foreign banks had established business organs in China, of which 39 enjoy a legal entity status, up from only 13 a decade ago. The number of their branches has also increased from 190 to 782. More importantly, these foreign banks have achieved a sustainable and rapid growth both in their assets and profits, with an average assets compound growth ratio of 19 percent and an average profit compound growth ratio of 26 percent. This is a praiseworthy performance, especially in the context of the global financial crisis.

The reason why foreign banks have maintained a low and even declining proportion in China's banking market should be largely attributed to the faster asset expansion of China's domestic banks during the same period, especially their drastically increased lending to infrastructure and real estate projects in the wake of the global financial crisis. As a result, their assets have increased dramatically.

The low market share of foreign banks in China should not be used as an excuse to negate their established market orientation and distinctive development paths in China. Different from their Chinese counterparts, foreign banks should try to prevent complete localization in an effort to maintain distinctive market orientations, governance methods and development models.

The assets of China-based foreign banks should not only include the assets of their China-based legal entities and subsidiaries, but also include their possessed stocks of Chinese-funded banks. To promote its opening-up to the outside, improve its governance and risk management capabilities, and sharpen its international competitiveness, China has continuously deepened and broadened the opening-up of its banking sector over the past decade. For example, foreign banks have not only been allowed to set up in China their solely-funded entities, joint ventures or subsidiaries, they have also been allowed to make investments in China's financial institutions. According to statistics, about 72 foreign financial agencies had made investments in 109 China's financial bodies by the end of 2011, with an accumulated investment of $40 billion. At the start of the global financial crisis, foreign banks held about 7 percent of Chinese banks' stocks. Although the proportion has declined slightly in the wake of the global financial crisis and the deteriorated financial conditions of their parent corporations and the increased pressures for capital withdrawal, there is still space for the proportion to rise.

Over the past three decades China's banking sector has continuously improved its openness to the outside world and increasingly integrated itself into the financial globalization. The domestic banking sector has realized a full and comprehensive opening-up since China's accession to the WTO, especially since the end of its five-year period of membership transition. Numerous restrictive measures on foreign banks have been canceled and a set of unified monitoring standards established, which apply to both foreign banks and their Chinese counterparts. Foreign banks are granted the same treatment as local banks. In a survey conducted ahead of the 10th anniversary of China's WTO membership on the operating environment in China, most foreign banks gave positive approval.

The increased number of legal entities set up by foreign banks and their increased capital operation in China also fully testifies to their growing confidence in China's long-term development and their optimism for the future.

The opening-up of China's banking sector has played a positive role in promoting institutional reforms and the financial innovation of domestic banks, raising their governance and risk management capabilities, and sharpened their international competitiveness.

The author is vice-chairman of the China Banking Regulatory Commission. The article was first published in First Financial Daily.