It was an ordinary Sunday afternoon and a branch of the Agricultural Bank of China (ABC), close to the central business district of Beijing, was crowded with impatient customers waiting in front of two counters to speak to a cashier, wondering why the other three were empty.

"Staff are having lunch", explained the bank guard. These grumbling customers had to keep waiting patiently, some for more than an hour until their requests were dealt with.

The experience of the customers at the ABC is typical of most customers' experience in banks across China. For decades, customers have complained about the poor level of service provided by banks, however few other choices existed so they ended up having to bear the queues and grumpy cashiers.

Soon though, the Chinese banking industry will experience an infusion of foreign banks launching Renminbi business services for the first time. This is an interesting development as it offers more choice to the disillusioned Chinese bank-users.

On December 11, the fifth anniversary of China's entry into the World Trade Organization (WTO), a five-year transitional period for the banking industry came to a close and, in line with WTO regulations, the Chinese government fully opened up its banking industry to foreign competitors.

In the once over-protected banking sector, the services provided by foreign-funded banks were highly regulated. They were only authorized to conduct a limited number of activities in a handful of appointed cities, thus restraining them from cashing-in on China's rapid economic development.

Following China's entry into the WTO in 2001, such restrictions on foreign banks have been gradually loosened step-by-step. Foreign exchange dealing has been opened to foreign-funded banks and 111 foreign financial institutions have been approved to offer Renminbi services for Chinese and foreign enterprises in 25 cities.

The most recent round of banking reforms is being seen as the final step towards WTO compliance. Regional and business restrictions have been removed and foreign-funded banks can now enjoy the same treatment as domestic Chinese banks.

These WTO commitments are being implemented through new regulations concerning the administration of foreign banks that were issued on November 15, and took full effect on December 11.

The new regulations state that foreign banks wishing to incorporate their business locally and set up subsidiaries in China, will be able to provide Renminbi business services to individual customers and issue bank cards.

However, the regulations have made it clear that if a foreign bank decides to continue to direct its Chinese operations from overseas, it will not be able to issue bank cards and will have to apply to carry out a limited range of business - anything more than 1 million yuan (127,000 U.S. dollars) of fixed deposits.

Foreign-funded banks have consistently showed a strong interest in embracing the Chinese market. No more than 24 hours after issuance of the new regulations, the London-based Chartered Standard Bank filed its application for registering locally.

Besides the Chartered Standard, seven other foreign-funded banks including Citibank, the Bank of East Asia, the Hongkong and Shanghai Banking Corp. (HSBC) and the Hang Seng Bank, have applied to the Chinese government to transform their branches into locally incorporated banks registered in China.

Commenting about the new regulations, Sun Jie, a customer from the Xuanwu branch of the Bank of China in Beijing remarked, "It is conducive to breaking the monopoly of the native banks and promoting competition in the industry, we will have more customized products for assets management."

Nowadays, a growing number of the Chinese public are discussing the merits of foreign-funded banks in comparison to the long-established Chinese ones.

"I will choose foreign-funded banks", said Yao Yun, who is a financial controller in a foreign company in Shanghai, "I often deal with foreign banks in my work, and find their services are pretty good".

Zhang Dandan, spokeswoman of HSBC in China told China Features, "We have received a lot of enquiries about our future services from customers and members of the public, both via phone and by coming into our branches for face-to-face enquiry."

However, services with higher quality will cost more. Foreign-funded banks are now focusing more on attracting customers such as Yao from the high-level market.

Indeed, foreign-funded banks, especially some of the world's giants such as Citibank and HSBC, have already begun to tempt prospective customers. Over the past couple of months, some people have started to receive text messages and phone calls from Citibank, introducing them to its foreign exchange management services.

Ever since China was accepted into the WTO, banking sector reform has been a major subject for discussion. China's banking watchdog, the China Banking Regulatory Commission (CBRC) was formed a year and a half after admission into the WTO so as to open up and reform China's banking industry.

A day after the new regulations were introduced on December 11, the CBRC approved the provision of Renminbi services to Chinese citizens by HSBC, Citibank and Chartered Standard, for values of 1 million yuan or more.

Some experts have welcomed the admission of foreign banks into the domestic market. Prof. Zhao Xijun, Deputy Dean of the School of Finance at Renmin University, believes that the general public will almost certainly gain from the competition between foreign and domestic banks.

"The financial market will be more diversified, which will allow the customers to choose from various financial products and services based on their demands and incomes", said Prof. Zhao.

However, like the experience of all other industries after WTO accession, the introduction of foreign banks into the domestic market has resulted in some challenges. With their advanced management and business experience, the foreign banks have the upper hand in competition forces over many of their domestic, state-owned counterparts.

Nevertheless, Chinese banks have long been preparing for this vehement competition from foreign banks. The entry of the foreign giants into the domestic market is being seen as a challenge for China's banking corporations.

Like the traditional state-owned enterprises, Chinese banks, especially the Big Four state-owned commercial banks - the Bank of China (BOC), Industrial and Commercial Bank of China (ICBC), Agricultural Bank of China (ABC) and the China Construction Bank (CCB) - have long suffered from inefficiency and poor management.

In the past, these state-owned enterprises were operated mainly according to administrative orders rather than market forces. Loans were often offered to poor-managed firms that had 'relationships' (or 'guanxi') with the banks or the government, resulting in a large number of non-performing loans.

Furthermore, as monopolies, the state-run banks were not afraid of losing customers and customer service provision was often of a poor standard.

During the five-year transitional period since 2001, the Chinese banking industry has undergone radical changes. Joint-stock reforms of state-owned commercial banks have been initiated - the BOC, ICBC and CCB have all made their Initial Public Offerings (IPO) on the Hong Kong and Shanghai stock markets, which will be followed by the ABC in the not too distant future.

Speaking last month, CBRC vice chairman Tang Shuangning said how he felt that, "The successful reforms of state-owned commercial banks have dramatically improved the international image of China's banking industry."

The improvement is obvious. A plethora of new services, such as more efficient cash withdrawal and deposits, Internet banking and telephone banking are now available to customers. In some joint-stock banks, such as the China Merchants Bank, and China Everbright Bank, customers can now enjoy impeccable customer service from the banking staff.

As a result of the improvement, home-grown banks, especially the Big Four, still hold a number of loyal customers.

Shen Yibo, a proponent of China's domestic banks commented in an online discussion of the new regulations, "I feel very secure to save my money with one of the Big-Four banks, as they are backed by the state."

Generally speaking, along with Shen, the majority of customers hope that the opening of the banking sector will compel the state-run banks to improve their provision of products and services.

In spite of calls of 'easy-pickings' for the foreign banking corporations, when it comes to the crunch Chinese banks have some advantages over them. This is mostly due to their large number of already well-established branches and outlets nationwide. For instance, the ICBC has over 18,000 outlets spread across the mainland, while the HSBC has only 28, mainly in East China's coastal cities.

Zhang Wei, deputy director of teaching and research division at the People's Bank of China's Graduate School believes that, "The number of foreign banks' outlets cannot catch up with that of native banks in a short time.. expanding the reach [of foreign banks] will cost a lot and will prove to be a long-term process."

Furthermore, Yi Xianrong, an economic critic with the China Academy of Social Sciences, told China Features that, with only a 1.9% market share of China's banking market, he felt that the foreign-funded banks have a long way to go to catch up with their domestic competitors. "Don't worry about it," he said unconcernedly.

The look and feel of China's banking industry sector in the future appears difficult to predict - will the foreign international banking giants flood the market? Or will the domestic banks continue to dominate?

The only thing that is certain is that WTO accession and the subsequent reform of China's banking industry will result in a win-win situation for consumers.

The competition between foreign and domestic banks is likely to stimulate a 'golden era' for banking in China, with customers enjoying a wider range of new products and services, happier bank staff and, most importantly, shorter queues.

(EDITOR'S NOTE: This feature story is provided by China Features, the sole news service on the Chinese mainland offering by-lined feature stories, news analyses and opinion pieces in English, along with photos, about latest major events in China.

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