Whom to bank on

Setting up a bank account is one of the first necessities for new arrivals in China.  Until recently, the choice for China-based expatriates of whether to bank with a Chinese or foreign-owned bank was largely a non-issue. Stringent regulations forbade foreign lenders from doing business in renminbi.

This changed in December 2006. As part of its WTO accession obligations, China agreed to let overseas players offer local currency services to individual customers. Last March, four foreign banks – Standard Chartered, HSBC, Citigroup and Bank of East Asia – successfully applied for local incorporation in China. They plan to roll out retail banking services nationwide, although new products require regulatory approval.

Armed with renminbi, do foreign banks now have the upper hand with their wider range of services and international experience? Or do the vast branch networks of the more established domestic lenders make them a better choice? There are a number of factors to consider.

Getting carded
At Chinese banks, applying for a debit or ATM card is easy. Bank of China (BOC), Industrial and Commercial Bank of China (ICBC), China Merchant’s Bank (CMB) and China Construction Bank (CCB) all offer debit cards, some with dual-currency accounts and English-language internet banking. The debit card is issued immediately on opening an account. Applying for an account requires a passport and a minimum deposit of around RMB20 (US$2.8).

For credit cards, however, the process is more complicated. Foreigners often cite difficulties involving proof of property ownership and banks asking for deposits that match the limit on the card. Bank of China, ICBC, CMB and CCB do issue credit cards to foreigners, provided they can supply a passport, company earnings statement, company license, individual earnings statement, employment contract and housing contract, though requirements vary between banks.

Bank of China offers a double-currency RMB-US dollar credit card, which can also be used to withdraw cash. Industrial and Commerical Bank of China issues a card with American Express that can be used outside China. The application process takes one month.

One American customer with CCB said he was allowed to get debit and credit cards if he deposited a large sum – RMB20,000 (US$2,800) – into his account. The limit on the credit card is set at half the amount deposited.

Overseas banks can also issue credit cards, but for now, they can only issue them through their respective Chinese partners. Most major foreign banks have local joint ventures, including: Bank of America-CCB, HSBC-Bank of Communications and Citibank-Pudong Development Bank.

But credit card regulations are changing. In December 2007, the China Banking Regulatory Commission announced it would allow five foreign lenders – Standard Chartered, HSBC, Citigroup, Bank of East Asia and Hang Seng Bank – to issue credit cards individually. To date, final authorization is still pending.

Local banks have a decisive advantage over foreign lenders in the number of ATMs and bank branches available across the country and through the China UnionPay network. Using the network, you can withdraw funds from any other local bank, regardless of where your money lies.

Withdrawals from Chinese banks are often limited, ranging from around RMB2,500 (US$350) to RMB6,000  (US$840) per withdrawal. However, some banks allow customers to make several withdraws in one day.

The convenience factor
Several Chinese and foreign banks offer English-language online banking. This is useful if you are paid in a currency other than renminbi.

David Dobson, who lives in Shanghai and banks with CMB, said, “CMB doesn’t have as many branches as some banks, but it has good internet banking. I can change my wage from US dollars into renminbi without going into the bank and queuing up. Plus, there’s no fee for foreign exchange transactions.”

Dobson added that, while he can pay bills online, he would like to be able to transfer money to other people electronically as well. This service is not currently offered by CMB.

Online services are important to customers because banking in person is often a frustrating process. Customer service can be poor, and non-Chinese speaker may struggle to make themselves understood. Foreign banks offer more in this area, with services catering to specific needs and higher standards of looking after their clients.  

But not all customers who choose an overseas lender are satisfied. One HSBC customer in Shanghai said it was difficult to set up standing instructions for his account and transfer funds between different cities. This customer also requires quick access to relatively large sums of money for business reasons but is often frustrated by the limits on local and foreign currency withdrawals.

Account holders can only withdraw US$50,000 in cash every year, with a current monthly limit of US$30,000 and an effective daily limit of US$7,900.

“Taking out money several times a week is a hassle,” he said. “So of course, along with everyone else, I turn to the black market.”