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As early as December 2001 when China officially acceded to the WTO， people used the proverb “the wolves are coming” to describe the foray into China by foreign banks keen to carve out a big share of the new highly-lucrative market.
For a long time， a dark cloud of pessimism hanged over the prospect of home-grown banks that were vulnerable to competition from foreign rivals.
However， due to strict rules and regulations on the market access and the operation of the yuan business for foreign banks in the past 13 years， “the foreign wolves” can not enjoy the same “national treatment” as Chinese-funded banks do， causing their slow development in the country.
Fast forward to 2014， the country bumped up the pace of the opening-up of the domestic financial sector. On Dec. 20， the State Council， or the Chinese cabinet， promulgated the new-ly-amended regulation on the administration of foreign-funded banks， which was scheduled to take effect on Jan. 1， 2015.
China lowers threshold for foreign banks
Under the new regulation， before a foreign bank， either a wholly foreign-funded bank or a Chinese-foreign joint venture bank， establishes a branch in China， there will be no need to first set up a representative office in China and have its parent bank allocate a specific amount of operating funds to the branch.
According to the previous regulation， the parent foreign bank were required to unconditionally transfer at least 100 million yuan or the same value in other freely-convertible currencies to its Chinese branch as the latter’s operating capital， which had a restrictive impact on capital replenishing at the Chinese branch.
Moreover， the parent foreign bank’s capital injection to its Chinese branch would be seen as foreign direct investment， which usually involved a complicated approval process from multiple government agencies.
Meanwhile， the new regulation also relaxes requirements on foreign banks’ application to engage in the yuan business， which will be a big boost to foreign banks’ development in China.
Previously， foreign banks were required to have had operated in China for at least three years and made a profit for two successive years before applying for the yuan business.
Now， the new regulation revises the requirement of at least three-year operation in China down to at least one- year operation and scraps the requirement of profit-making for two successive years. Besides， the new regulation says that if a foreign bank has one branch in China that has already been approved to carry out the yuan business， its other branches in the country will be free from restrictions when applying for the same business.
Are “Foreign Wolves” Really Coming？
Undoubtedly， relaxing above-mentioned requirements is good news for foreign banks in China. From now on， foreign banks can enjoy the “national treatment” as home-grown banks do. However， it also gives rise to concerns over the prospect of domestic banks， in view of the influx of foreign banks after the implementation of the new regulation. Are the wolves really coming this time？
“If new foreign banks plan to enter the Chinese market， the new regulation will be helpful to their development in the country，” says a deputy governor of a foreign bank.
With more foreign banks into the market， their standardized management， high value-added financial services products， and more mature business models are bound to be introduced into China， which will inevitably exert an unfavorable influence on Chinesefunded banks.
However， on the other side， the influx of foreign banks will force Chinese-funded banks to shift their focus toward the real economy， thereby reversing the adverse situation faced by the real economy due to difficulties and high costs in financing.
Jungle Effect
In 2006， the State Council released the first version of regulation on the administration of foreign banks in China. Over the past eight years， foreign banks’ development in the country has not been smooth sailing due to the strict regulation. The new regulation emerges under the background.
China’s move to further ease market access for foreign banks is aiming at spurring the domestic banking sector. To be specific， its aim is to give a full play to the“jungle effect”.
Since entering into WTO， the pessimistic view that the domestic banks would be devoured by those “foreign wolves”has been hanging over the China’s banking sector. However， it’s precisely the crisis awareness that greatly boosted up the speed of domestic banks’ reform， promoting major homegrown banks to finalize the capital injection， shareholding reform， foreign strategic investor introduction， and IPO in the domestic and overseas markets.
It is hard to imagine such a comprehensive， rapid reform process in China generally advocate gradual reform way without the threat from those “foreign wolves”. However， the “jungle effect”was not given full play over the past decade， as the previous regulation restricted the market access for foreign banks and the operation on the yuan business. With the regulations shackling the development of foreign banks in the past decade， home-grown banks had the time to beef up their survival abilities in the jungle. Therefore， it is the right time to give full play to the “jungle effect” to make the lambs stronger in the war with wolves.
A More Open Market
Previously， many foreign bankers almost resigned themselves to playing a small role in China’s domestic market. Instead they use their local offices mainly as a platform to serve foreign clients in the country， while working to gain business with Chinese companies and rich individuals with overseas fundraising and wealth management needs. The top items on the US and EU chamber wish lists include greater freedom to fund themselves through overseas parents； easier approvals for new branch openings； and elimination of foreign ownership restrictions in securities companies， fund management companies and local commercial banks.
Since the establishment of the Shanghai Free Trade Zone， foreign banks have flooded into the city to set up branches， seeking new profit sources. It is obvious that foreign banks are eager for a more open market in China， where they can give a full play to their advantage and conduct business innovation.
Insiders said that a lower threshold for foreign banks came as a part of the opening of China’s service market， which will offer them national treatment rather than special treatment. The 18th Plenary Session has also presented the notion of expanding the financial opening-up to both outside and domestic market.
China Banking Regulatory Commis- sion believes that to deepen the reform will create a more friendly environment for foreign banks and let foreign capitals play a more active role in China’s development. It will also promote the cooperation between domestic and foreign financial institutions， accelerating the fusion of both sides in terms of capital， technologies， products and management， improving the efficiency of financial recourses allocation， and eventually， improving the service quality of China’s financial sector.
According to the Central Committee’s directive， there has to be laws to abide by before making any major reforms. To adapt to that， authorities have to modify current regulations accordingly.
For a long time， a dark cloud of pessimism hanged over the prospect of home-grown banks that were vulnerable to competition from foreign rivals.
However， due to strict rules and regulations on the market access and the operation of the yuan business for foreign banks in the past 13 years， “the foreign wolves” can not enjoy the same “national treatment” as Chinese-funded banks do， causing their slow development in the country.
Fast forward to 2014， the country bumped up the pace of the opening-up of the domestic financial sector. On Dec. 20， the State Council， or the Chinese cabinet， promulgated the new-ly-amended regulation on the administration of foreign-funded banks， which was scheduled to take effect on Jan. 1， 2015.
China lowers threshold for foreign banks
Under the new regulation， before a foreign bank， either a wholly foreign-funded bank or a Chinese-foreign joint venture bank， establishes a branch in China， there will be no need to first set up a representative office in China and have its parent bank allocate a specific amount of operating funds to the branch.
According to the previous regulation， the parent foreign bank were required to unconditionally transfer at least 100 million yuan or the same value in other freely-convertible currencies to its Chinese branch as the latter’s operating capital， which had a restrictive impact on capital replenishing at the Chinese branch.
Moreover， the parent foreign bank’s capital injection to its Chinese branch would be seen as foreign direct investment， which usually involved a complicated approval process from multiple government agencies.
Meanwhile， the new regulation also relaxes requirements on foreign banks’ application to engage in the yuan business， which will be a big boost to foreign banks’ development in China.
Previously， foreign banks were required to have had operated in China for at least three years and made a profit for two successive years before applying for the yuan business.
Now， the new regulation revises the requirement of at least three-year operation in China down to at least one- year operation and scraps the requirement of profit-making for two successive years. Besides， the new regulation says that if a foreign bank has one branch in China that has already been approved to carry out the yuan business， its other branches in the country will be free from restrictions when applying for the same business.
Are “Foreign Wolves” Really Coming？
Undoubtedly， relaxing above-mentioned requirements is good news for foreign banks in China. From now on， foreign banks can enjoy the “national treatment” as home-grown banks do. However， it also gives rise to concerns over the prospect of domestic banks， in view of the influx of foreign banks after the implementation of the new regulation. Are the wolves really coming this time？
“If new foreign banks plan to enter the Chinese market， the new regulation will be helpful to their development in the country，” says a deputy governor of a foreign bank.
With more foreign banks into the market， their standardized management， high value-added financial services products， and more mature business models are bound to be introduced into China， which will inevitably exert an unfavorable influence on Chinesefunded banks.
However， on the other side， the influx of foreign banks will force Chinese-funded banks to shift their focus toward the real economy， thereby reversing the adverse situation faced by the real economy due to difficulties and high costs in financing.
Jungle Effect
In 2006， the State Council released the first version of regulation on the administration of foreign banks in China. Over the past eight years， foreign banks’ development in the country has not been smooth sailing due to the strict regulation. The new regulation emerges under the background.
China’s move to further ease market access for foreign banks is aiming at spurring the domestic banking sector. To be specific， its aim is to give a full play to the“jungle effect”.
Since entering into WTO， the pessimistic view that the domestic banks would be devoured by those “foreign wolves”has been hanging over the China’s banking sector. However， it’s precisely the crisis awareness that greatly boosted up the speed of domestic banks’ reform， promoting major homegrown banks to finalize the capital injection， shareholding reform， foreign strategic investor introduction， and IPO in the domestic and overseas markets.
It is hard to imagine such a comprehensive， rapid reform process in China generally advocate gradual reform way without the threat from those “foreign wolves”. However， the “jungle effect”was not given full play over the past decade， as the previous regulation restricted the market access for foreign banks and the operation on the yuan business. With the regulations shackling the development of foreign banks in the past decade， home-grown banks had the time to beef up their survival abilities in the jungle. Therefore， it is the right time to give full play to the “jungle effect” to make the lambs stronger in the war with wolves.
A More Open Market
Previously， many foreign bankers almost resigned themselves to playing a small role in China’s domestic market. Instead they use their local offices mainly as a platform to serve foreign clients in the country， while working to gain business with Chinese companies and rich individuals with overseas fundraising and wealth management needs. The top items on the US and EU chamber wish lists include greater freedom to fund themselves through overseas parents； easier approvals for new branch openings； and elimination of foreign ownership restrictions in securities companies， fund management companies and local commercial banks.
Since the establishment of the Shanghai Free Trade Zone， foreign banks have flooded into the city to set up branches， seeking new profit sources. It is obvious that foreign banks are eager for a more open market in China， where they can give a full play to their advantage and conduct business innovation.
Insiders said that a lower threshold for foreign banks came as a part of the opening of China’s service market， which will offer them national treatment rather than special treatment. The 18th Plenary Session has also presented the notion of expanding the financial opening-up to both outside and domestic market.
China Banking Regulatory Commis- sion believes that to deepen the reform will create a more friendly environment for foreign banks and let foreign capitals play a more active role in China’s development. It will also promote the cooperation between domestic and foreign financial institutions， accelerating the fusion of both sides in terms of capital， technologies， products and management， improving the efficiency of financial recourses allocation， and eventually， improving the service quality of China’s financial sector.
According to the Central Committee’s directive， there has to be laws to abide by before making any major reforms. To adapt to that， authorities have to modify current regulations accordingly.