New rules governing the operations of foreign banks in China took effect at the beginning of February. They replace all previous rules and are intended to give effect to China’s commitment to opening its financial services to foreign institutions after joining the World Trade Organisation.
The rules divide foreign banks in China into Chinese registered and foreign registered. The requirements on the former are significantly less than on the latter – for example the asset requirement for China-reg-istered FIEs to set up other branches in China is only half that of overseas-registered foreign banks, which require US$20bn. Other provisions in the old rules have not changed, meaning that foreign banks are only allowed to open one new branch a year, making it difficult for them to build a branch network.
Wholly foreign-owned banks and Sinoforeign joint venture banks must maintain a minimum registered capital of Yn1bn, 60 per cent of it in yuan and the rest in hard currencies. Wholly foreign-owned and joint venture non-bank financial companies must have a minimum registered capital of Yn700m. In addition, to obtain a licence to offer the wider range of services, including business in domestic currency, permitted under the terms of China’s membership of the WTO, branches of foreign banks are required to have to additional minimum assets. These amount to Yn600m in cash per branch office on top of the 8 per cent of outstanding deposits laid down by the Bank of International Settlements.
This requirement has angered many foreign bankers in China, who see it as an attempt to erect a new barrier to their expansion in China. Jim Enters, vice-president of the European Chamber of Commerce in China, has threatened to press the EU to introduce retaliatory measures on Chinese banks in Europe.
Other banks appear to have accepted the new rules, South China Morning Post said. HSBC had started the application process to offer foreign-currency businesses for corporate and individual clients in four cities: Beijing, Shanghai, Shenzhen and Guangzhou. HSBC Shanghai head office spokesman Zhang Dandan said the bank is arranging an asset boost to qualify to offer the new services. Standard Chartered and Citibank officials in Shanghai also said their banks were preparing applications. Sumitomo Mitsui Banking and United Financial Japan of Japan and Korea Exchange Bank and Cho Hung Bank of South Korea have applied to launch yuan services in Tianjin. In addition, a People’s Bank of China official said that foreign bank branches had applied to offer yuan services in Dalian.