Measures to shield Chinese banks

  • Business
  • Thursday, 28 Apr 2005

BEIJING: Foreign lenders eager to get into China's massive banking sector may be stymied by measures to help protect domestic banks from overseas competition, a top regulator was quoted as saying yesterday. 

HSBC Holdings Plc, Citigroup Inc and a slew of smaller overseas players have been moving steadily into China with an eye to 2007, when they are to have unfettered access to US$1.5 trillion in savings under World Trade Organisation obligations. 

However, Beijing was considering stricter market-entry requirements and curbs on stake purchases to give domestic banks time to improve operations, the China Daily quoted Shi Jiliang, vice-chief of the China Banking Regulatory Commission. 

“We need to focus on having an appropriate level of protection for Chinese banks,” Shi said. 

In the three years since China joined the WTO in 2001, foreign banks had more than doubled their holdings of Chinese-currency assets to 108.3 billion yuan (US$13.1bil), Shi said. 

To help local players – which have myriad problems ranging from billions of dollars in bad loans to embezzlement scandals – China was considering limits on the pace and geographic extension of foreign banks' entry, Shi said. 

One analyst said that while competition would increase after 2006, the threat might be overstated. 

“Substantial competition can only occur once foreign banks buy very large domestic banks, but that's not going to happen any time soon in China,” said Citigroup analyst Yiping Huan. 

Currently, foreign banks can only buy up to 20% of a mainland lender. 

“Even after 2006, competition will be in narrow areas, there won't be full-scale competition for a long time. Not every bank can afford the capital to set up a bank branch, it's expensive,” he said. 

China's banking sector is the Achilles heel of an economy growing at faster than 8%. 

The government is desperate to clean up its Big Four – Agricultural Bank of China, Bank of China, China Construction Bank and Industrial and Commercial Bank of China. 

Bank of China, China Construction and ICBC are all planning IPOs by 2007 but are hamstrung by billions of dollars in bad loans and a recent string of scandals. On April 22, Beijing gave ICBC a US$15bil bailout to help clean its balance sheet. 

China is worried these troubled banks will be unprepared when it lifts all geographic restrictions on yuan business in December 2006. It has already lowered capital requirements. 

The CBRC was considering measures to “manage” the expansion of foreign banks in the local market, including a ban on purchases of stakes by foreign banks in more than two major Chinese banks, Shi was quoted as saying. He did not elaborate. 

“But we will fulfil our (WTO) commitments,” Shi said. “That will not be changed.” 

The official Financial News quoted Shi as saying new measures would also include encouraging foreign banks to set up shop in the less-developed central and western provinces to “reduce excessive competition” with local banks. – Reuters  

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