China banking sector opens up

However, until now foreign banks with representation in China have been barred from offering retail services in the Chinese currency.

Bad debts

China agreed to open its banking market as a condition of joining the WTO.

As a result Chinese banks have been racing to modernize and cut back on billions of dollars in bad debts in preparation for the arrival of foreign competitors.

Several of the world’s biggest banks have applied for retail licenses including US-based Citigroup, Japan’s Mizuho Corporate Bank and Britain’s HSBC Corp. and Standard Chartered PLC.

Also applying for licenses are Dutch bank ABN Amro Holdings NV, Singapore’s DBS Bank and Hong Kong’s Bank of East Asia and Hang Seng Bank.

Most have already spent billions of dollars preparing to enter the Chinese market, buying stakes in Chinese partners, setting up credit card and other ventures, and marketing them to China’s fast-growing band of wealthy entrepreneurs.

However, under the conditions of entry foreign banks still must meet a range of Chinese regulatory requirements to operate in the retail market.

Those rules, along with the massive cost of setting up a branch network, are expected to discourage many from setting up local operations.

Another factor is the dominance of the big Chinese banks, the biggest of which, Industrial and Commercial Bank of China (ICBC) has around 18,000 branches and $700 billion in deposits.

Given these conditions, most foreign banks are expected to continue to operate through joint-ventures with Chinese partners.