China eases restrictions on branch openings and yuan transactions by foreign banks

BEIJING: China eased restrictions on branch openings and yuan transactions by foreign banks as it opens its domestic financial industry.

China will drop from January 1 the requirement that a foreign bank's parent transfer a specific level of operating funds to any new Chinese branch, according to a statement posted on the State Council's website yesterday. Foreign banks will be eligible to apply to conduct yuan transactions after operating in China for one year, from a previous three years, and the requirement for two consecutive years of profit will be dropped.

"These rules are aimed to bring more competition to the banking industry and expand the openingup policy," said Wu Kan, a fund manager at Dragon Life Insurance Co. "By doing so, China's also preparing for an internationalization of the renminbi," referring to the Chinese currency also known as the yuan.

The changes will make it easier for foreign banks including Citigroup Inc. and HSBC Holdings Plc to expand their footholds in the world's second-largest economy. Until now, overseas lenders were largely shut out of China's banking industry as they faced government restrictions on adding branches and offering products.

Obstacles to building branch networks have made it difficult for foreign banks to gather deposits and issue loans. Restrictions on stock and bond sales have thwarted investment banks, including Goldman Sachs Group Inc. and France's BNP Paribas SA.

Under the new rules, which amend regulations announced in 2006, banks are no longer required to establish a Chinese representative office before they set up branches, joint ventures or wholly foreignowned lenders, according to the statement.

China promised in December 2006, five years after joining the World Trade Organization, to remove geographic restrictions on overseas banks and allow them to start yuan lending and deposit services, as well as issue credit cards. Before that, the firms concentrated primarily on currencyexchange services for foreigners.