still have a strong government background—with central or local government being the biggest share holder, which inevitably will bring some constrains in the banks’ independent management.

# **4. Introduce international competition into the financial sector.**

**_a. Opening further to foreign bank entry_** . In February 2002, PBC published detailed implementation rules of Regulations on the Administration of Foreign Financial Institutions; in March PBC unified the regulations on deposit and loan interest rate towards domestic banks and foreign banks. In March 2002, the PBC began issuing licenses to allow banks to extend foreign exchange services to domestic companies and individuals. Citibank Shanghai HSBC, the Bank of East Asia, Hang Seng Bank and Standard Chartered received licenses in 2002. In June 2003, the Closer Economic Partnership Arrangement (CEPA) was signed between the mainland and Hong Kong with the services sector benefited most from it. A wide range of professions will enjoy freer access to the mainland market and, in particular, the entry requirements for banks will be relaxed (Oxford Analytic, 12 December 2003), the mainland will implement some of the commitments it made to the WTO members ahead of schedule for the benefit of Hong Kong (China Daily, 24 December 2003).

In December 2003, the **ceiling on foreign ownership in local banks was raised from 15% to 20% for single shareholders and 25% overall,** to encourage foreign banks taking a strategic stake in domestic banks (Oxford Analytica 27 Aug 2003). Foreign banks would benefit by gaining immediate market entry and the right to undertake limited local-currency operations ahead of competitors who must wait until WTO restrictions are lifted in 2006. Many foreign financial institutions have become important shareholders of China’s banks (See table 1). In July 2004, CBRC announced that **100 foreign banks** operating in China were allowed to provide banking services in local currency in 13 cities. Foreign bank’s renminbi-denominated assets reached 84.4 billion yuan (US$10.2 billion) at the end of June, up 49 percent, year-on-year, indicates by CBRC’s data (China Business Weekly July 27, 2004). CBRC also loosened rules regarding foreign financial institutions’ capital requirements to “promote their healthy growth”. (China Daily August 05, 2004)

**Table 1:  Foreign Ownership in China’s Local Banks**

|Local Banks|Investing Foreign Banks|% of<br>Shares|
|---|---|---|
|Bank of Communications|HSBC (Shanghai)|19.9*|
|Shenzhen Development Bank|New Bridge Capital|17.89|
|Shanghai Pudong Development Bank|Citi Bank|4.6|
|China Minsheng Banking Corp.|IFC|1.6|
|Industrial Bank Co.(Fujian)|HSBC/ Government Investment Corp. of<br>Singapore/IFC|16 / 5 / 4|
|China Everbright Bank|China Everbright Group (Hong Kong)<br>/ADB|20.1 / 3|
|Bank of Shanghai|HSBC/IFC/Shanghai Commercial Bank|8 / 7 / 3|
|Nanjing City Commercial Bank|IFC|15|
|Fujian Asia Bank(a joint venture<br>bank)|HSBC/Ping An Insurance Group|50 / 50|
|Xi’An City Commercial Bank|IFC/ Sotia Bank|12.5 / 12.4|
|Dalian CityCommercial Bank|SHK Financial Group|10|

Source: Securities Market Weekly July 2004. *This deal was completed in August 2004.

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