The rule will be submitted to the State Council for further approval and is likely to come out one month before the country fully opens its banking sector on December 11, in line with China's commitments to the World Trade Organization.

Meanwhile, six foreign banks have already started to turn their operating branches into locally registered corporations in order to better deal with renminbi business, according to the source at the China Banking Regulatory Commission (CBRC).

According to the rule, instead of setting up branches, foreign lenders are encouraged to register local corporations within China.

The rule will be little changed compared to the draft version the CBRC sent out to seek opinions from China's administrative bodies and foreign banks.

"The new rule encourages foreign banks to register locally, which will have a much lower threshold to enter the Chinese market than registered abroad banks. This will benefit foreign banks' long-term development," the CBRC said in the draft rule.

Six foreign lenders HSBC, Citibank, Standard Chartered, Bank of East Asia, Hang Seng Bank and DBS Group all agreed with the draft rule and have started the procedure of transfering operating branches into locally registered corporations.

A total of 10 foreign banks are understood to be ready to change their branches in China to local corporations, with these banks' total assets accounting for 50 per cent of the combined assets of foreign lenders in China.

Criteria set in the earlier version, such as the requirement that renminbi deposits should be no less than US$125,000 for banks registered abroad and that foreign banks keep overall lending no higher than 75 per cent of overall deposits, are unlikely to be changed in the final version of the rule.

A number of foreign lenders had expressed their dissatisfaction with these criteria, expressing concerns that they prevent many ordinary savers from depositing money in those banks.

"It is unlikely there will be a further loosening of the rules on foreign lenders dealing with renminbi business in response to claims by some overseas players that the draft rule is too restrictive," said the CBRC source, emphasizing that the rule is aimed at encouraging foreign banks to register local corporations within China, rather than establishing branches to deal with renminbi business.

Experts pointed out that it is more in line with international norms and is a better way to protect domestic depositors' interests.

Amid concerns that many foreign banks were worried that it might take a longer time due to complex legal procedures, the CBRC said it would work with local governments to help foreign lenders shorten the transition process.

(China Daily 10/11/2006 page9)

(For more biz stories, please visit Industry Updates)