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Editor's Desk
Print Edition> Editor's Desk
UPDATED: April 2, 2007 NO.14 APR.5, 2007
Banking on Change
By ZHANG ZHIPING
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The opening up of China's banking sector took another giant step forward on March 20 when the first four foreign banks gained approval to incorporate locally. After going through commercial registration formalities, the banks will be able to conduct much coveted renminbi retail business on the Chinese mainland, according to China's administrative rules on foreign financial institutions that took effect three months ago.

By the end of 2006, the last transitional year following China's entry into the World Trade Organization (WTO), a fully opened financial market had been required. Locally incorporated foreign banks are now guaranteed to enjoy equal treatment with their Chinese counterparts to begin offering a full range of local currency services to the market.

In line with its WTO membership commitments, during the past five years China has taken a prudent approach to push forward financial reform. Timely policy adjustments and a stabilized market environment have secured the accelerated establishment of overseas banks in China, with 312 foreign-funded financial institutions registered before 2007, 60 percent more than five years ago, when just 190 were registered.

China's banking sector has experienced fast growth since the first representative office of the Export-Import Bank of Japan was established in 1980. From operating in designated areas to national coverage, from foreign currency services to renminbi business, from foreign residents to Chinese citizens, from corporate clients to individual customers, foreign banks are continuously exploring the market via ever-expanding networks and portfolios. During this period, joint programs and equity cooperation between domestic lenders and their foreign counterparts have been widely promoted. Newly released statistics by the industry watchdog China Banking Regulatory Commission show that combined assets of overseas banks operating in China's mainland have topped $103.3 billion, 1.8 percent of the total. It shows that foreign service providers have already been a major and indispensable part of China's banking sector.

Despite the fact that most local banks are greatly challenged by strong foreign competitors, they are willing to open their arms to the transfer of advanced corporate governance expertise and innovative ideas. In the short term, some high-end clients may turn to foreign banks and some senior managerial staff may jump ship, but at least China's domestic banks have been given an equal opportunity to compete with these foreign giants.

Financial tools and other derivatives have highly motivated Chinese customers and vigorously promoted the market in recent years, which have in turn further bolstered industrial reform and a business reshuffle. Up to now, except for the Agricultural Bank of China, almost all major state-owned commercial banks have completed the joint-stock transformation through introducing strategic investors and have been listed on the stock markets at home and/or abroad, in addition to other policies and software improvements. Small and medium-sized local commercial banks and rural credit cooperatives are undergoing reconstruction as well.

Nowadays, most Chinese lenders have successfully changed the previous unitary share-holding structure and strengthened their capital power in collaboration with foreign partners, who are helping to raise business awareness and management levels to an international standard. Through this process, these foreign financial institutions have also gained access to the Chinese market. In this regard, a business pattern of common development and mutual benefit has been entrenched in this emerging market.



 
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