Standard
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 20%.
Elsewhere on the finance front:
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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 Japan.
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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.
