Beijing eases entry for foreign banks
July 15, 2013 Category Finance, Weekly
Premier Li Keqiang has approved a milestone plan to allow foreign banks to directly set up wholly-owned subsidiaries in Shanghai’s new free-trade zone in a move designed to accelerate the opening of its financial services sector to global players. Foreign banks will be permitted to set up shop directly in the free-trade zone in the Pudong New Area. They will also be allowed to establish joint-venture banks with Chinese partners, either state-backed or from the private sector. The overseas partner can own the majority stake. The move potentially cuts years from the time foreign banks must otherwise spend following a step-by-step regulatory roadmap before opening branches or subsidiaries and is being seen as a sign of renewed efforts to kick-start financial reform. The government would also encourage domestic private firms and foreign enterprises to set up financial services companies, such as accounting and rating agencies, in the zone, widely expected to be a testing ground for major policy reforms to free up cross-border commodity and capital flows. Normally, a foreign bank needs to first set up a representative office, which will be used for communication and consulting purposes. It can apply to the China Banking Regulatory Commission (CBRC) to upgrade the office to a full-scale bank branch after two years, provided it has not breached any financial rules. If the foreign bank wants to set up more branches, particularly to expand into new cities, or establish a wholly-owned unit, it has to undergo a long approval process involving the banking regulator and relevant government bodies, such as the tax department. “The biggest hurdle to Shanghai becoming a regional financial center is to allow foreign banks to set up subsidiaries and enter the market freely,” said a source with close ties to the State Information Center, the think tank affiliated to the National Development and Reform Commission (NDRC).
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