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China eases market access for foreign banks

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BEIJING, Dec. 20 (Xinhua) -- The Chinese cabinet announced new rules on Saturday that will ease market access for foreign banks in a move to further open up the domestic banking sector.

The State Council published the amended rules on Saturday, which 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 unconditionally allocate at least 100 million yuan (around 16.4 million U.S. dollars) or the same value in other freely-convertible currencies.

The requirement used to have a restrictive impact on capital replenishing at foreign banks' China branches. Meanwhile, direct capital injection from parent companies to their branches would also be treated as foreign direct investment, which often involved a complicated approval process from multiple government agencies.

"The amendment seeks to lower the threshold for foreign banks to set up branches and do business in China. It also marks the further opening up of the Chinese banking industry," said Zeng Gang, a researcher at the Chinese Academy of Social Sciences.

Analysts said that the amendment showed a willingness to treat foreign banks and domestic banks equally.

"We have always stressed that foreign banks enjoy the same treatment as their domestic peers in terms of policies and regulations in order to nurture a level playing field, and China is moving toward this direction based on what we have seen today," said Guo Tianyong, a banking industry researcher.

The new rules will also scrap the previous requirement that foreign banks or Sino-foreign joint venture banks should first establish a China representative office before they could set up branches.

Meanwhile, the new rules have 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 applying for such business will also face no profitability requirement, a change from profit making for two successive years in the past.

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

The new rules will take effect on Jan. 1, 2015.

Foreign banks have seen slow expansion in the Chinese market in recent years compared to rapid expansion in 2007, when they were approved to transform their Chinese branches into locally incorporated banks registered on the Chinese mainland.

However, Guo said that any foreign bank would need a certain period of time before all its businesses were in full swing. The slow growth of foreign banks might not be solely the result of restrictions.

Zeng Gang said that foreign banks with good management as well as steady growth must be ready for more competition in the Chinese market as time goes on, adding that China remained a destination with great prospects for profits.

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