Following the recent announcement of several crucial economic
reforms by the People's Republic of China ("PRC")
leadership, and eight years since the promulgation of China's
Administrative Regulations on Foreign-Invested Banks (the
"foreign banks regulations"), the PRC State Council
issued several amendments to the foreign banks regulations,
effective from January 1. These amendments further open access to
the market by foreign banks through the following changes.
Foreign Invested Banks Are No Longer Required to Allocate
Minimum RMB100 Million Working Capital to Their China Branches
Before the amendments, wholly foreign invested banks and
Chinese–foreign jointly invested banks (collectively,
"foreign invested banks") were required to
unconditionally allocate at least RMB100 million (or other freely
convertible currencies of equivalent value) of working capital to
each of their branches in China.
Removing the minimum working capital requirement provides
foreign invested banks significant flexibility in allocating
working capital among their branches and will in turn increase the
financial efficiency of foreign banks having operations in China.
More importantly, the removal of the minimum capital requirement
encourages foreign invested banks to expand their business presence
in China through more geographic locations with relatively
A Representative Office Is No Longer Required as a Precondition
for Setting Up a Foreign Invested Bank or Branch
Previously, before incorporating a wholly foreign invested bank
in China, the sole or controlling shareholder had to have set up a
representative office in China for two years or longer. Similarly,
the sole or major foreign shareholder had to have had a
representative office in China before it could set up a
Chinese–foreign jointly invested bank with a Chinese partner.
Also, a foreign bank was required to have operated a representative
office in China for at least two years before setting up its first
branch in China.
The removal of the preconditions mentioned above signals the PRC
government's desire to encourage foreign banks to have more
footholds in China by easing the incorporation process of foreign
invested banks and branches.
The Prerequisites for Foreign Banks' Application to Carry
Out Renminbi Business Are Relaxed
Foreign invested banks and branches of foreign banks that wish
to engage in renminbi business were required to have operated in
China for three years with profits for two consecutive years before
applying for such business. The amendments reduced the three-year
requirement to one year and dropped the profitability requirement.
In addition, the amendments provide that if a branch of a foreign
bank has already been approved by the authorities to engage in
renminbi business, such foreign bank may engage local currency
business through its other branches in China without being subject
to the one-year operation requirement. We believe that these
relaxed requirements further reflect China's efforts to proceed
with the renminbi internationalization, and foreign banks are
encouraged to participate in this process.
Branch networks are one of the major factors that attribute to
the market share of domestic and foreign banks in China. Under the
RMB100 million working capital and two-year existing representative
office requirements, foreign banks faced impediments to efficiently
expanding their geographic scale in China. According to media
reports, the total number of bank outlets of all major foreign
invested banks in China is much smaller than that of any of the
big-four national banks in one province on the east coast. Pursuant
to the 2013 Annual Report issued by the China Banking Regulatory
Commission, the market share of foreign invested banks and branches
of foreign banks based on total asset value was kept lower than 2
percent during the years of 2009 through 2013.
Through the issuance of the amendments, the Chinese government
is allowing foreign banks to set up foreign invested banks and
branches and engage in renminbi business much more easily. Given
that the financial markets in China are becoming increasingly
complex and diverse, foreign banks, especially those sophisticated
and experienced multinational banks, are welcome to take part in
the growth and reform of China's financial industries.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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