New regulation brings raft of changes for global banks in China

China loosens license requirements for foreign banks

Touted as a breakthrough reform, the opening up of a wide range of banking services to global banks should support efforts in bolstering China’s financial sector. Financial services made simple by fewer documentation and clear guidelines should attract more foreign banks to increase their presence in the world’s second largest economy

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4 May 2017

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 The China Banking Regulatory Commission (CBRC) further liberalized regulations for global banks’ onshore entities with a raft of policy changes introduced in March. Circular No. 12 that allowed foreign banks to engage in a number of banking services in China forms part of the nation’s bid to further open up its financial markets to overseas institutions.

The circular allows global banks’ onshore entities, including wholly owned foreign banks, joint-ventures, and their onshore branches, to underwrite Chinese government bonds, run custodian businesses and provide financial advisory services without having to submit applications to CBRC. Banks are only required to report to the regulator within five days once they start providing the services.

Onshore entities are also able to collaborate with their global parent and provide integrated financial services including bond issuance, initial public offerings, M&As, and financing in offshore markets. Global banks’ onshore entities need to specify their roles and profit allocation with their parent and submit their annual business reports to Chinese regulators at the end of the first quarter of each year. In addition, global banks are also allowed to invest in onshore banking institutions.

According to CBRC, as of the end of 2016, global banks have set up 39 legal entities in China, including 315 branches and 166 representative offices across 70 cities.

“The new circular is beneficial to global banks in a sense that they are able to leverage on their strength in providing international integrated service. They can play an active role in China’s economic transition by participating China’s One Belt, One Road initiative and supporting Chinese corporates to go global,” says CBRC.

China has committed to further opening up its financial markets to overseas institutions over the past few years. The nation announced plans to introduce a bond trading link between Hong Kong and the mainland by year-end allowing easier investor access to their markets.

“We will continue to step up reforms, which is a gradual process. In retrospect, we have been moving forward with the process over the past few decades,” says premier Li Keqiang at a recent press conference.

“Streamlining administration, the integration of control and decontrol, and the regulation and improvement of government services form an integral whole. The government needs to improve its oversight during and after the process and provide better services for businesses and the people. When market access is widened, the government needs to ensure a fair playing field for all market entities,” he adds.

The new circular marks CBRC’s first major initiative under its new chairman, Shuqing Guo. Chinese analysts cite Guo as a “real reformer” owing to changes he instituted at the China Securities Regulatory Commission (CSRC) where he served as chairman. During his leadership, he introduced ‘weekly reforms’ at CSRC. 

Date

4 May 2017

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