Chartered and HSBC are the first in what presumably will be a long list
of foreign banks rushing to tap into China's retail banking market by
incorporating in China.

New rules introduced this week open up the country's banking market
but require foreign banks that want to do yuan-denominated business to
set up stand-alone local operations with dedicated capital of at least
1bn yuan.

Standard Chartered, has already submitted its application
and says it will add two branches to the 20 it has on the mainland in
the coming months and plans to double its presence by 2008. Its Chinese
operation will also launch private banking sometime in 2007 to
capitalise on the growing number of affluent Chinese.

Standard Chartered already owns 19.9% of China Bohai Bank, based in
the eastern city of Tianjin. It bought the stake in 2005 and became the
first foreign bank to be allowed to take a stake in a local bank.

HSBC, another old Asia hand, operates the largest network of any
foreign bank in China with 26 branches and it plans to add 10 to 20
outlets to its Chinese network next year.

The new rules have been described by Chinese officials as proof of
how the country has met its commitment to fully open its financial
sector to foreign competition, which was one of the key conditions of
China's accession to the WTO.

However, the regulations potentially hurt smaller foreign banks, which will not want to set aside so much capital and so will have to operate in the PRC via JVs, according to Marketwatch.

China's banking regulator is considering permitting foreign banks to
issue yuan-denominated bonds on the interbank market, in order to help
them meet capital requirements under the new rules.

Regulatory authorities have not yet agreed on an immediate
relaxation of restrictions on foreign ownership of domestic banks.
Currently total foreign investment in a single domestic bank is limited
to 25% and the share any one foreign investor can hold is restricted to

Elsewhere on the finance front:

  • ABN Amro said it has launched a leasing business
    in China to provide asset-based finance products. The bank said that it
    expects demand to be concentrated on leasing of capital goods such as
    mining equipment, manufacturing plant, electricity generators, port
    handling equipment and road making equipment. China's annual leasing
    volume was $2.4bn in 2004, compared with $220bn in the US and 7$4bn in

  • China's asset managers may invest $75bn abroad
    in the next two years, says an economist at Standard Chartered Bank
    interviewed by Bloomberg. China's huge trade surplus and its success in
    attracting FDI have led to the appreciation of the yuan. To stop
    currency reserves piling up back home, China wants to encourage more
    investment overseas and domestic banks and fund managers have already
    won approval to invest more than $12bn overseas under the QDII program.

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