China to relax curbs on foreign bank branches
(Reuters)
Updated: 2005-09-22 19:26

AWASH IN DEBT

Beijing has made a priority of reforming its banking sector, fearing its $200 billion of bad debt could jeopardise future economic stability.

The government has urged domestic banks to seek foreign capital and expertise.

Now, Beijing especially encourages foreign banks to set up branches in the country's under-developed west, hoping to divert more foreign capital there in line with the country's "go west" economic policy.

"Foreign banks may directly apply for the establishment of operational branches in western China, without having to open representative offices first," Xinhua News Agency quoted Xu Feng, a director within the CBRC, telling foreign bankers visiting Sichuan province in western China on Tuesday.

Dutch lender ABN AMRO , which has applied to open a branch in Sichuan's provincial capital of Chengdu, hoped to be the first to do so directly, Xinhua cited an ABN AMRO official as saying, in a report issued late on Wednesday.

Industry regulators also planned to ease other curbs this year that had long irked some foreign players, including a tacit rule that limited overseas lenders to opening one branch a year, the Shanghai-based bankers said.

Previously, regulators have sought to control expansion via that restriction, industry executives say. But bankers said on Thursday this practice would be phased out.

"Though it's not a written rule yet, we (foreign banks) now have an understanding with the regulator on this matter," said a British bank executive in Shanghai. "Foreign banks can now open two branches a year, or more."

London-based HSBC Holdings Plc. , the world's third-largest bank by market value, upgraded two representative offices in China's west into full-fledged branches this year.

Other restrictions may remain, including higher initial capital requirements levied on foreign banks than on local ones for setting up a branch.

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