Foreign banks need to convert their branches in China into locally incorporated companies to
conduct the coveted renminbi retail business, according to rules released
late on Wednesday.
The requirement is aimed at preventing global financial woes of foreign
banks from spilling over to their branches in China, Song Dahan,
vice-minister of the State Council's Legislative Affairs Office, said
yesterday.
When a bank registered overseas is hit by a financial crisis, the
interests of depositors in the country where the bank is registered are
usually considered ahead of depositors at branches in other parts of the
world.
So the local-incorporation requirement will help protect Chinese
individuals who deposit money in foreign banks operating in China, Song
told a news conference arranged by the State Council Information Office.
"This requirement is consistent with China's WTO (World Trade
Organization) commitments," Song said. "It is also in line with
international norms and the principle of prudential supervision supported
by the WTO."
"We believe that local incorporation will enable us to further expand
our network and service range, in particular our RMB financing ability,
for the benefits of the customers in Chinese market." Richard Yorke, China
CEO of HSBC, said in a statement.
The rules, which take effect on December 11, fulfil the last
commitments on opening up the banking sector China made when it entered
the WTO five years ago.
From December 11, Chinese and foreign banks will be under a unified
regulatory system; and the current restrictions on overseas banks'
locations and choice of customers will be lifted.
Currently, foreign bank branches need the regulator's approval to offer
any kind of service involving the Chinese currency. From December 11, all
foreign branches will be allowed to accept time deposits of at least 1
million yuan (US$125,000) by private Chinese individuals.
