| China sets rules on foreign banks |
BEIJING, Nov. 16 (AP) -- Foreign banks will have to incorporate locally if they want access to China's lucrative retail banking market, revised rules from China's Cabinet said.
The rules, published late Wednesday, will take effect Dec. 11, when China must fulfill its World Trade Organization pledge to fully open its banking sector to foreign competition.
China is set to lift limits that prevent foreign banks from providing yuan-denominated services to Chinese clients and allow foreign banks nationwide access starting Dec. 11. Foreign banks now own their Chinese branches from overseas headquarters.
The regulations don't vary significantly from those explained in a draft notice circulated among foreign and domestic banks in August.
Under current regulations, foreign banks can handle loans and deposits in foreign currencies, but they can provide yuan-denominated services only to enterprises in 25 cities. The planned change will let overseas lenders offer Chinese consumers products such as mortgages and credit cards.
In exchange for access to the domestic retail market, China will require foreign banks to establish domestic subsidiaries with a minimum of 1 billion yuan (US$127 million; €100 million) in registered capital in either local or foreign currency, according to the rules published on the State Council's Web site.
The locally incorporated foreign banks must capitalize their branches with at least 100 million yuan (US$12.7 million; €9.93 million) or the foreign currency equivalent.
Foreign banks that choose not to incorporate in China will only be allowed to accept term deposits of at least 1 million yuan (US$127,000; €100,000) from Chinese residents at their branches.
Bankers and analysts expect larger foreign banks such as Citigroup Inc. and HSBC Holdings PLC won't be significantly harmed by the new rules as they already plan to commit large amounts of capital for their China expansions.
However, most likely to be affected are smaller foreign banks that are considering doing independent retail operations in China, but may not be willing to commit large amounts of capital to do so.
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