Liu Mingkang, chairman of China Banking Regulatory Committee, has bluntly dismissed mounting speculation that Beijing will increase curbs on foreign banks. In an exclusive interview with Emerging Markets, Liu said that his country's long-standing policy of encouraging foreign participation will not change. China will comply fully with its obligations under WTO accession to open its market fully to foreigners by the end of next year, he added.
"It is our policy that all geographic and customer restrictions on foreign banks will be removed [by December 2006]," Liu said. "We like foreign participation, we encourage that."
Liu's comments follow media conjecture, including by the Financial Times that the People's Republic is set to restrain the expansion of foreign banks to protect local lenders from undue competition. This appeared to be an about-turn on the authorities' recent wooing of overseas financial institutions.
Shi Jiliang, vice chairman of the CBRC was quoted as saying that Beijing might still be able to direct foreign banks to open in China's poorer western provinces, away from the wealthy coastal areas. In a clarification of Shi's comments, Liu said that this in no way suggests a change in policy by imposing limits on foreign banks.
"The CBRC's policy of encouraging foreign banks to seek business development in western and north-eastern areas does not indicate any more restrictions on their development in coastal or eastern cities," he said.
Liu pointed out that the CBRC has granted "expedited review and approval procedures" for foreign banks setting up in the west and north east of the country since December 1, "in order to address the unbalanced geographic distribution of foreign banks in China," but that the Commission's policy remains unchanged."We encourage foreign banks to develop in China organically, gradually, to show [successful] cases to the Chinese banks," he added.
Liu noted that one of the prime motivations for introducing foreign participation is to provide a model for corporate governance to domestic players. "What we lack most [in China] is talent and experience," he said. Liu believes that encouraging greater foreign participation will help remedy that.
With CBRC's backing, more than a dozen foreign banks have taken stakes in local commercial banks and are negotiating to become investors in the big state lenders before they list overseas.
Nevertheless, Liu pointed out that restrictions are in place: foreign banks can only have equity links with at most two Chinese financial institutions, and foreign equity stakes are capped at 20% an investor. He also said that China only welcomes strategic institutional investors, not portfolio investors. "I don't think the risks are too large to control," he said.
In further evidence of the country's commitment to market reform, Chinese regulators will for the first time this year talk to all foreign equity takers "one by one, on a secret basis, to find out what they are feeling, and where we can better our job," said Liu. In turn, CBRC will get feedback from local players on how "foreign equity participants can do better."
The operations of the 235 foreign branches in China account for 3% of the system's total assets.