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China Eases Market Access for Foreign Banks

China’s State Council has announced new rules that will ease market access for foreign banks, in a move to further open up the domestic banking sector.

The amended rules will no longer require a specific amount of operating funds to be transferred from the parent foreign bank to its newly established Chinese branch. Previously, a foreign bank would have to allot at least RMB 100 million ($16.4 million). The State Council admitted that the requirement had a “restrictive impact on capital replenishing” at foreign banks’ China branches.

In addition, direct capital injection from parent companies to their branches was previously treated as foreign direct investment, which often involved a complicated approval process from multiple government agencies.

The new regulations, which amend those announced in 2006, will also remove the previous requirement that foreign banks or joint venture banks had to first establish a China representative office before they could set up branches.

The State Council has also relaxed requirements on foreign banks’ application to carry out renminbi business. Foreign banks will be able to apply for such business if they have operated in China for at least a year, down from the previous requirement of three years. The banks will also face no profitability requirement, whereas before they had to generate profits for two successive years.

Under the new rules, if a foreign bank has one branch already carrying out RMB business, then its other branches will no longer face restrictions in launching the same business.

The new rules will take effect 1 January 2015.

joy@profit-loss.com

Profit & Loss

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