Wholly foreign-funded banks, Chinese-foreign joint venture banks and branches of foreign-funded banks are categorized as operational entities. Among these operational entities, 168 were established by Asian banks, making up 54 percent of the total; 77 were established by European banks, accounting for 25 percent of the total; and 32, or 10 percent of the total, were established by North American banks.

He Liping, Director of the Center for Financial Studies of Beijing Normal University, deems that since branches of foreign-funded banks in China can only engage in renminbi deposits above 1 million yuan, an increasing number of them will be converted into locally incorporated banks in the future.

So far, the transition has been a smooth one for these foreign-funded banks. HSBC Bank (China), starting business this April, will focus on wealth management business.

"We provide special wealth management accounts with professionals providing services to clients," Tina Chen, account manager of HSBC Bank (China), told Beijing Review. "We are planning to launch some investment funds, and foreign currency-related wealth management services will be available to clients of reminbi accounts."

According to the Report on the Opening-up of the Chinese Banking Sector, by the end of December last year, the number of services permitted to foreign banks had exceeded 100. Moreover, 115 foreign-funded banks have already registered to provide renminbi services. These foreign banking entities will be allowed to take deposits, make loans and engage in settlement, trust and insurance agency business. Provided they meet certain regulatory conditions, they can operate just like any Chinese domestic bank.

At the same time, China has been encouraging financial innovations, allowing foreign-funded banks to engage in derivatives trading, qualified foreign institutional investors (QFII), custodian business, personal wealth management, offshore banking services on an agency basis, and electronic banking.

"The Chinese financial market has become a paradise for bankers all over the world," He said.

The CBRC will continue to encourage the development of foreign banks, welcoming them with open arms into China. According to the report, with a view to carrying out the state development strategy, foreign-funded banks are encouraged to conduct business in northeast, west and central China, where they will enjoy preferential treatment for establishing branches and gaining market access.

Locally incorporated foreign banks will be allowed to offer full foreign currency and renminbi services to all customers. They will be subject to the same regulations as domestic banks when determining interest rates for deposits and loans, the rates of service fees, depositing required reserves and drawing loan loss provisions. These subsidiaries shall also meet the same requirements as Chinese banks in their asset-liability management activities, including capital adequacy and large exposure requirements, as well as connected lending activities.

Besides facilitating locally incorporated foreign banks, the Chinese Government also hopes to create a better environment for foreign bank branches. For example, foreign bank branches may continue their current business and are allowed to take in an renminbi time deposit of no less than 1 million yuan from Chinese citizens. The business approval process will be further streamlined and the working capital requirement is lowered. Also, the requirement that the foreign exchange deposits taken by a foreign-funded bank shall not exceed 70 percent of its aggregate foreign exchange assets within the Chinese territory will be removed. Finally, foreign bank branches may, if they wish, convert into locally incorporated subsidiaries at any time according to their own business development strategies.

Deep impacts

As for the overall development of the Chinese banking sector, entry of foreign banks is obviously beneficial according to some analysts. "It can promote the healthy development of the Chinese banking industry," said He Liping.