Bank of China

Banking regulator to slow opening of sector

PUBLISHED : Monday, 21 April, 2008, 12:00am
UPDATED : Monday, 21 April, 2008, 12:00am

CBRC feels pressure to protect domestic players

The China Banking Regulatory Commission (CBRC) will slow down in opening up the banking sector this year amid growing pressure on the government to protect homegrown lenders, sources said.

The regulator delayed approving at least two outlets to be opened by foreign banks, the South China Morning Post learned.

A source close to the CBRC said the delays were a fresh sign that top officials of the agency were taking a go-slow approach after the country fully opened the banking market to foreigners.

Zuo Dapei, a researcher at the Chinese Academy of Social Sciences, recently accused CBRC officials of sacrificing domestic banks to cosy up to the foreign counterparts.

Mr Zuo, an influential adviser to Beijing on financial policies, was against the country's entry into the World Trade Organisation.

The researcher's remarks were echoed by a host of domestic economists and bankers, who called on the government to carefully assess the negative impact of the foreign banks' entry.

'It is possible that those academics' views can play a role in the top regulators' decision-making,' said a CBRC official. 'At present, we are conducting researches and won't make any conclusion until the year-end.'

Domestically incorporated overseas banks can now do the full range of yuan businesses on the mainland. A single foreign bank can buy up to 20 per cent share in a Chinese lender, while the combined foreign ownership of a domestic counterpart is limited to 25 per cent.

An overseas bank can open new branches subject to CBRC approval.

At the end of last year, 26 overseas banks were locally incorporated with total assets of US$171.4 billion, according to the People's Bank of China. A total of 35 foreign investors have stakes in 24 mainland banks.

'Given the fast growth of domestic banks such as the Big Four, China accelerated the move to open up the sector in the past years,' said TX Investment Consulting analyst Zhang Pan. 'Still, China has reasons to take a cautious stance on the banking sector, a backbone industry that holds the lifeline for the national economy.'

Early this year, a CBRC draft rule implied that the ownership limit of 25 per cent on foreign investors might be raised, without giving details.

The draft rule prompted Mr Zuo to point out that domestic banking assets were being sold cheaply to foreign investors. In one of his articles, Mr Zuo said some of the assets were sold to foreign capitalists at 'stunningly low prices'.

The researcher cited Industrial and Commercial Bank of China as an example. In 2006, a consortium led by Goldman Sachs bought 10 per cent of ICBC at 1.16 yuan (HK$1.295) a share. The company's A shares closed at 5.75 yuan on Friday.

Mr Zuo said the deal was unusual in that foreign investors could reap huge benefits easily.

The regulator soon denied speculation that the foreign ownership limit would be raised.

The pro-reform CBRC chairman Liu Mingkang told a government conference early this year that the commission would spend the whole year reviewing the policy.

'We want to find out whether every party is happy after the co-operation,' Mr Liu said. 'We want to find out the reasons if any party is not happy.'