For the first time, China is allowing eligible foreign banks to provide renminbi services to domestic enterprises.

Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC) made the announcement yesterday in Beijing.

Liu also said Jinan, Fuzhou, Chengdu and Chongqing have joined Shanghai, Shenzhen, Tianjin, Dalian, Guangzhou, Zhuhai, Qingdao, Nanjing, and Wuhan as cities in which foreign banks are permitted to conduct local currency services.

Previously, foreign banks were only allowed to provide renminbi services to foreign enterprises and individuals as well as Hong Kong and Macao citizens.

The latest opening up of the banking industry demonstrates China's firm commitment to keeping its World Trade Organization (WTO) promises and extending foreign participation in its banking reforms.

The moves, effective yesterday, "mark another milestone in the opening of the Chinese banking sector and will provide foreign banks with more opportunities for both foreign and local currency businesses," said Liu.

Meanwhile, the commission signaled a welcome to "qualified strategic investors from abroad" to participate in the reforms of Chinese financial institutions by announcing an increase in the equity share of a single foreign investor to 20 per cent from the previous 15 per cent.

The CBRC also made amendments to the current six-level arrangement for operating capital requirements on foreign-funded financial institutions, reducing the minimum requirement for the highest level from 600 million yuan (US$72 million) to 500 million yuan (US$60 million), and from 500 million yuan to 400 million yuan (US$48 million) for the second highest level.

With respect to operating capital requirements for branches of locally incorporated foreign-owned banks and Sino-foreign joint venture banks, the commission decided to replace the current six-level arrangement with a three-level one and reduce the minimum requirement for each level to 100 million yuan (US$12 million), 200 million yuan (US$24 million) and 300 million yuan (US$36 million) respectively.

On a related front, Liu said his commission is reviewing applications from three foreign firms to set up auto financing companies.

He dismissed some media reports that foreign banks are seeing their shares shrinking in China, noting that they have enjoyed strong growth for almost all the past 20 years except for a sharp slowdown during the Asian financial crisis.

By the end of October this year, 62 foreign banks had set up a total of 191 operating entities in China, with 84 of them holding a local currency license.

Their total assets rose by 29.7 per cent on a year-on-year basis in the first 10 months of this year, while profits from renminbi operations at the 84 licensed outlets soared by 37 per cent.

Their presence in China not only brings advanced experience in corporate governance, internal controls and risk management and expertise, but also has prompted Chinese banks to improve services due to competition.

(China Daily December 2, 2003)