Banking Regulator Opens Seven Cities to Local Currency Business by Foreign Banks

The China Bank Regulatory Commission (CBRC) announced (in Chinese) on December 5 that foreign banks may apply to conduct local currency business in the cities of Shantou, Ningbo, Harbin, Changsha, Lanzhou, Yingzhou, and Nanning. The State Council Information Office published the CBRC announcement.

The services schedule to China's WTO accession package contains an agreement to open specific cities to local currency business by foreign banks during each year after accession. The schedule requires the Chinese government to permit foreign banks to conduct local currency business in Shantou and Ningbo, as well as Shenyang and Xi'an, by December 11, 2005. The government opened the latter two cities for this purpose in December 2004, according to a report from the Hong Kong Trade Development Council. The WTO accession commitments did not list the other five cities in the announcement specifically, but all geographic limitations on foreign banks doing local currency business must end by December 11, 2006.

On the same day, the Chinese government's chief banking regulator reaffirmed that China would fulfill its WTO commitments on opening up the financial services sector on schedule in 2006, according to a December 5 Agence France-Presse (AFP) report carried in the South China Morning Post. Liu Mingkang, the Chairman of the CBRC, also announced that the Chinese government will stop injecting capital into commercial banks to cover losses, a practice used to make the banks more attractive to investors before an initial public offering. Although not a specific WTO commitment, ending the practice of covering bank losses would make the Chinese banking system more independent and accountable.