But the banks might eventually be allowed to pay interest to small depositors at a lower rate than to relatively bigger depositors, a banking source said.

"It (charging depositors) is against the Commercial Bank Law, and it is unrealistic," the official said.

China's Commercial Bank Law stipulates that all depositors should be paid with interest, he said.

But foreign banks could make decisions on their own on the charging issue because the Rules on Administration of Foreign Financial Institutions, which governs their operations in China, do not cover charging.

Heated debate about commercial banks charging depositors was brought on after some foreign banks operating in China announced they would charge depositors whose account balance is under a certain amount.

Some Chinese banks immediately said they would follow suit.

Li Lihui, a vice-president of the Industrial and Commercial Bank of China (ICBC), the biggest bank in China, said last week that the Chinese banks are considering setting the threshold at 100 yuan (US$12). Accounts with balances lower than that amount will be charged a fee for being maintained.

Chinese banks have been closely watching foreign competitors since their overseas counterparts were allowed wider access to China's banking industry and to offer services to Chinese individuals after China joined the World Trade Organization late last year.

Some foreign-funded enterprises reportedly switched to foreign banks from Chinese ones for better service.

ICBC's Li said accounts with deposits of 100 yuan or less make up 20 per cent of his bank's total accounts. The average balance of these small accounts is a mere 13 yuan (US$1.60), Li said.

The cost for managing these accounts is a burden to the banks, he said.

The central bank official said small depositors still represent an important fund source for the banks. But he did not define small depositors.

The central bank said it would join the State Development Planning Commission in drafting a set of detailed rules on charges on intermediary financial services.

The commission is a major policy-maker for product and service prices.

(China Daily June 4, 2002)