Ten foreign banks have opened subsidiaries in the Shanghai free-trade zone, but none has obtained a key permit that would allow them to take advantage of the liberalisation offered.
Released from the tight controls on foreign exchange elsewhere on the mainland, firms registered in the zone are supposed to be able to freely convert and transfer capital between overseas accounts and free-trade accounts (FTAs), which the central bank will treat as offshore accounts.
Banks in the zone must apply to the central bank for a permit to allow them to open FTAs for their corporate clients.
"It's funny to see all the banks competing with each other in issuing press releases to say they finally opened [an office] in the free-trade zone, but few of the banks can really tell you what exactly they can do there after they get their branches," said a senior executive at a foreign bank who declined to be named, as he was not authorised to speak to the media.
Another foreign banker involved in the application process, who declined to be named owing to the political sensitivity of the matter, told the South China Morning Post he believed the central bank - the People's Bank of China - might be delaying FTA approval to foreign banks on purpose because Beijing wanted domestic banks to have the first go.
In fact, five mainland banks have already received the permit, including three of the Big Four state lenders - Bank of China, Industrial and Commercial Bank of China and China Construction Bank - as well as Shanghai Pudong Development Bank and Bank of Shanghai, according to the central bank.
It is believed that at least five foreign banks have applied for the permit, but bankers involved say they expect it will take several months before those foreign banks can meet even the minimum regulatory requirements, owing to the complexity of the new banking system in the zone.
The 10 foreign banks that have opened subsidiaries in the zone are Britain's HSBC and Standard Chartered, US bank Citi, Japan's Bank of Tokyo-Mitsubishi UFJ, Sumitomo Mitsui Banking and Mizuho, as well as Hong Kong's Bank of East Asia and Hang Seng Bank, Singapore's DBS and Australia's ANZ.
The Shanghai free-trade zone, which was launched last year and is personally backed by Premier Li Keqiang , is a key experiment in the central government's economic reform effort.