China will gradually eliminate the preferential treatment given to foreign-funded banks to ensure fairer competition between Chinese and foreign banks, Wu Xiaoling, vice-president of the People's Bank of China, the country's central bank, said last week.
China will also step up the opening of the banking sector to increase the presence of foreign banks in China, Wu noted at the recent Forum on International Investment in China.
Currently, foreign banks operating in China enjoy preferential treatment compared to domestic banks in income tax rates, foreign exchange deposits and loan rates, financing of foreign currency and inter-bank lending terms.
To stimulate the healthier development of China's banking sector and sharpen the competitive edge of domestic banks in the face of intensified competition, China will gradually eliminate these privileges to ensure fair play, she said, without disclosing a timetable.
As for the opening process, she said foreign-funded banks would be able to provide foreign currency services to Chinese enterprises and citizens when China enters the World Trade Organization (WTO).
They will be able to provide renminbi services to enterprise customers two years after China's WTO entry and renminbi businesses to individual customers after another three years. Five years after China's WTO entry, foreign banks will not be limited in geographical region when conducting renminbi businesses.
Wu also talked about the general principles that would govern the liberalizing of interest rates over the next several years.
"The foreign currency rate should be liberalized before the renminbi rate; rural before urban areas; loans before deposits; and flotation of the rate before total liberalization."
Meanwhile, Wu said it is also important to deepen the reform of domestic banks to better prepare them for increased competition.
The State-owned commercial banks will be transformed into state-owned companies with corporate governance. Some will even be converted into shareholding companies.
Wu said the central bank will increase the capital assets of these banks through various methods including listing on the stock market and the introduction of shareholders.
They will also be required to lower their non-performing assets ratio through stringent internal controls and business innovation, she added.
"In two years time, state-owned commercial banks will be told to release information on their non-performing assets and financial matters," she said.
And in three to four years, all financial institutions that handle deposits will have to set up information release systems as transparent as those required of listed companies.
(China Daily 05/08/2001)
