If you’re looking for a bank to open an account of at least 80,000 yuan ($1=7.7 yuan) in Beijing and you don’t want to queue in an outlet of a local bank, Citibank (China) Co. Ltd. can be an alternative, as it began to offer renminbi services to Chinese residents from April 23. A minimum balance of 80,000 yuan is the requirement of its regular service.

Along with Citibank (China), three other locally registered foreign banks-HSBC Bank (China) Co. Ltd., Standard Chartered Bank (China) Ltd. and Bank of East Asia (China) Ltd.-have all begun offering similar renminbi services since the same day.

Geographic and customer restrictions were removed for foreign banks providing renminbi business on December 11, 2006. Since then, locally incorporated foreign banks can offer services to all kinds of local customers just like their local counterparts. The above four foreign banks finished their local registration in March.

This year marks a turning point not only for China’s banking sector, but also the whole financial industry.

The five-year transitional period after its entry into the WTO ended on December 11, 2006, a day on which China submitted a perfect answer sheet, fulfilling its commitments regarding the financial industry.

Of the three financial sectors, banking and insurance have almost fully opened to foreign competition. However, the opening pace of China’s fledgling securities sector lags behind.

To keep pace with China’s economic development and considering the short development history of China’s securities market, China shouldn’t be too hasty to open its securities market.

Shang Fulin, Chairman of the China Securities Regulatory Commission (CSRC), said that the CSRC will continue to learn from other markets while opening up. He said that it will stick to the principles of opening gradually, seeking win-win situations and further open the capital market over a proper time period and at a proper degree in order to promote healthy and stable development.

Beyond WTO commitments

During the 2001-06 transitional period, China actually opened its financial industry far beyond its WTO commitments.

According to the Report on the Opening Up of the Chinese Banking Sector released by the China Banking Regulatory Commission (CBRC) in March, as of end-December 2006, there were 14 locally incorporated wholly foreign-funded banks and Chinese-foreign joint venture banks in China. In addition, 74 foreign banks set up 200 branches and 79 sub-branches in 25 Chinese cities, and 186 foreign banks opened 242 representative offices in 24 cities. The number of products foreign banks were permitted to offer exceeded 100, and 115 branches of foreign-funded banks were granted permission to provide renminbi services. Assets of foreign-funded banks totaled $103.3 billion by the end of 2006, accounting for 1.8 percent of total banking assets in China.

The report said that China also took a series of initiatives independent of its WTO commitments:

First, foreign banks were encouraged to set up branches in central, west and northeast China. Cities in these regions, including Xi’an, Shenyang, Harbin, Changchun, Lanzhou and Xining, were opened ahead of schedule to their renminbi business, while foreign banks applying to set up new branches and open new businesses in these regions have been entitled to expedited approval procedures.

Second, the minimum requirement on foreign banks’ operating capital was appropriately lowered to ease their liquidity constraints.

Third, foreign banks were allowed, like their local counterparts, to engage in trading of financial derivatives, QFII (qualified foreign institutional investor) custodian business, offshore wealth management and custodian business, and insurance.

The CBRC website shows, among the current 13 QFII custodians, there are five foreign banks: HSBC (Shanghai Branch), Citibank (Shanghai Branch), Standard Chartered Bank (Shanghai Branch), Deutsche Bank and DBS Bank.

Fourth, according to the Closer Economic Partnership Arrangements (CEPA) with the Hong Kong and Macao special administrative regions, the banks in Hong Kong and Macao, including foreign banks located there, can enjoy comparatively favorable treatment when seeking to establish branches or open new businesses on the mainland.

Fifth, China permitted and encouraged qualified overseas strategic investors to acquire equity in Chinese banks on a commercial and voluntary basis.

Three of the big-four state-owned commercial banks-China Construction Bank, Bank of China, and Industrial and Commercial Bank of China-introduced foreign strategic investors and were listed on the Hong Kong stock exchange. The latter two were also listed on the Shanghai A-share market.

Regarding the securities sector, while China fulfilled its commitments such as allowing foreign securities institutions to directly transact B shares and establish joint venture securities and fund management companies, it also partly opened its capital market on its own initiative, said Liu Xinhua, CSRC Assistant Chairman.

The CSRC website shows that, as of end-December 2006, there were six joint-venture securities firms and 24 joint venture fund management companies. Foreign stock holdings in 11 joint-venture fund management companies reached 49 percent. On the Shanghai and Shenzhen stock exchanges, there are four foreign special members respectively, and there are also 39 and 19 foreign securities institutions transacting B shares, respectively.

The most significant indicator of the capital market’s opening is the QFII system, launched in 2002. Since then, qualified foreign institutional investors have been allowed to invest in or trade Chinese A shares via special accounts opened at designated custodian banks for their clients.