Chinese banks brace for greater foreign competition http://today.reuters.com/news/articleinvesting.aspx?view=CN&storyID=2006-12-09T074805Z_01_PEK307029_RTRIDST_0_BANKS-CHINA-WTO.XML&rpc=66&type=qcna
Sat Dec 9, 2006
By Kirby Chien
BEIJING, Dec 9 (Reuters) - Competition for Chinese banks is set to intensify next week as regulators pry open the financial sector to meet commitments under the World Trade Organisation.
The rapidly emerging economic power lifts restrictions on foreign access to the retail banking market as a five-year transitional period for China to implement its WTO commitments comes to an end.
If foreign banks choose to incorporate as a local entity by stumping up 1 billion yuan ($128 million) in capital, they will gain full access to China's retail banking market, including some $2 trillion in household deposits and the ability to issue credit cards.
"Foreign banks will leverage their experience and sophisticated products to attract customers, employees and business in China's financial sector," Yang Kaisheng, the president of ICBC (1398.HK: Quote, Profile , Research) told a conference on Saturday.
"The competitive environment will intensify," he said.
Beijing has spent more than $400 billion since 1998 cleaning up the top three state banks to try to lay a foundation to attract foreign strategic investors and launch successful share offerings.
Last month, Industrial & Commercial Bank of China (601398.SS: Quote, Profile , Research) completed the world's largest share sale, raising US$21.9 billion in Shanghai and Hong Kong.
Goldman Sachs (GS.N: Quote, Profile , Research), Allianz Group (ALVG.DE: Quote, Profile , Research) and American Express (AXP.N: Quote, Profile , Research) have all invested in ICBC and are helping the state bank to modernise its operations and introduce new products to lower the bank's reliance on lending for profits.
KEY YEAR
While the state-run banks have benefitted from central government largesse, China's private banks have been forced to deal with market forces for a longer period of time.
"We have implemented the highest standards of risk management," said Ma Weihua, the chief executive of China Merchants Bank Co. (3968.HK: Quote, Profile , Research) (600036.SS: Quote, Profile , Research), the mainland's largest non-state-owned bank.
Merchants Bank said on Friday it aims to increase staff by about 7 percent in 2007 to compete with foreign rivals.
"2007 will be a very key year for all the banks in China, no matter foreign bank or Chinese bank, and we believe human resources will be the key," Tang Zhihong, a Merchants Bank vice president, said on Friday.
"Doing business according to WTO rules will present (Chinese) companies with a very serious challenge," warned Wu Jinglian, an influential economist at the cabinet's Development Research Centre.
Wu is an advocate of further reforms and the free market, arguing that a stronger currency would help push local exports up the value chain. Since joining the Geneva-based trade group, China has cut its average tariff to 9.9 percent in 2005 from 15.3 percent in 2001. It has also scrapped or revised more than 3,000 rules and regulations while opening its economy to foreign competition.
China is likely to come under renewed pressure next week to open up its financial markets with the visit of U.S. Treasury Secretary Hank Paulson, who leads a high-level delegation to the country.
On CNBC television, Paulson said China had become too large a player in the global economy to keep pleading for time to make reforms that others see as necessary.
(US$=7.83 yuan)
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