China Banking Ring of Fire for MNCs

♠ Posted by Emmanuel in , at 3/02/2007 02:20:00 AM
China is committed to opening up its banking sector to international providers of financial services because of its WTO membership. Stipulations on foreign access to the local Chinese market--including the provision of renminbi accounts--came into effect late last year. However, the government has made foreign banks jump through many hoops to obtain licenses as the competitiveness of Chinese banks--particularly state-controlled banks (SCBs)--remains questionable. With their high levels of non-performing loans that the government has spent a reported $400 billion to bail out since 1998, forced purchases of low-yielding sterilization bills to keep inflation in check, and forced purchases of foreign assets so official reserves do not appear so mind-bogglingly huge, these banks bear the brunt of state interference.

Oxford Analytica has just catalogued some eye-popping hoops that a foreign bank must go through to operate in China:
  • minimum registered capital of 1 billion renminbi ($129.2M) and allocation of 100 million renminbi ($12.9M) to each branch it opens to obtain national treatment;
  • having total assets of over $10 billion, while a foreign bank that seeks to open a branch has to have total assets of over $20 billion;
  • foreign branch banks can only take time deposits above 1 million renminbi ($129,200) from Chinese citizens if not locally incorporated;
  • numerous provisions allow the China Banking Regulatory Commission (CBRC) to slow or even stop the expansion of foreign banks at any time.
By placing such onerous conditions on entry and operation, China is attempting to shield its SCBs from the onslaught of foreign competition. For instance, such high minimum requirements for renminbi time deposits may make non-incorporated foreign bank operations in China more akin to private banking for an elite clientèle than to retail banking. I enumerated the US cases against China that are underway or are almost underway at the WTO. I suspect that it might not be long before foreign banks start complaining about these onerous conditions for doing business in China. Could these conditions be deemed non-tariff barriers to services by the WTO? Watch this space.