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Thu, Aug 24, 2006 - Page 10 News List

China not likely to meet WTO pledge to open banking sector, experts say


China is unlikely to live up to its WTO commitment to provide full market access to foreign banks by the end of this year, experts said on Tuesday in Washington.

When China joined the global trade body in 2001, it pledged to provide a uniform regulatory environment to all banks by the end of a five-year transition period.

Under such a framework, foreign banks have to be treated in the same manner as domestic banks and operate under the same rules and regulations.

"However, it is unlikely that the Chinese government will immediately remove all hurdles to foreign banks operations to create a level play field," Vickie Tillman, the executive vice-president of global ratings agency Standard and Poor's credit market services said.

She was testifying at a hearing of the US-China Economic and Security Review Commission, a panel mandated by the US Congress, on China's financial system and monetary policies.

Major limits for foreign banks in China include time-consuming license application procedures, different capital requirement for branch operations, foreign debt quotas and limited equity participation in local banks, Tillman said.

As for ownership in domestic banks, she said, the Chinese government had given no signals that it was ready to loosen its current control any time soon.

"On the contrary, it continues to maintain control over the banking system in the name of national financial security," she said.

"In short, Standard and Poors expects the scope of foreign bank activities and their ability to exploit their experience, products and capital will be carefully managed post-2006," she said.

Another Standard and Poor's official told the hearing that by December, branches of foreign banks in China should be allowed to engage in local currency operations -- deposit-taking and lending -- on a nationwide basis.

But, this was unlikely to have any impact on the competitive landscape, as foreign banks were already permitted in line with WTO accession commitments to engage in local currency operations in 25 of China's larger cities, said Michael Petit, the agency's managing director for Asia-Pacific corporate and government ratings.

He cautioned however that some "less visible but potentially critical restrictions" could remain, such as the need for regulatory permits for branch openings or the introduction of new products.

For example, approvals to deploy automated teller machines, a key tactic to attract a wealthy clientele and expand into the retail-banking sector, "have been notoriously slow," he said.

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