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Overseas banks get their hands on RMB
POSTED: 10:00 a.m. EDT, November 17,2006
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."

Foreign banks must put up 1 billion yuan (125 million U.S. dollars) for the incorporated bank and set aside 100 million yuan (12.5 million U.S. dollars) for each branch.

"We believe that local incorporation will enable us to further expand our network and service range, in particular our RMB financing ability, for the benefit of our customers in the China 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.

According to the WTO's General Agreement on Trade in Services, its member economies are allowed to protect depositors' interests and maintain the soundness and stability of the domestic financial system by introducing prudential measures.

Song said that foreign banks, which opt to continue conducting business in China with branches, will also be permitted to provide more types of services when the market is opened wider next month.

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 (125,000 U.S. dollars) by private Chinese individuals.

Wang Zhaoxing, assistant chairman of the China Banking Regulatory Commission (CBRC), said "the Chinese Government will do everything it can to facilitate the conversion process, which can take one to three months."

The total assets of foreign-funded banks in China were worth 105.1 billion U.S. dollars at the end of September, accounting for 1.9 per cent of the total assets of all banking institutions in the country, the CBRC said yesterday.

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