Mainland goes slow on opening of yuan trade to foreign banks

A level playing field in yuan business for foreign banks is ruled out by Beijing, but it will allow them and foreign insurance companies to expand their scope of business, possibly later this year.

'There is still a big gap between China's financial development and that of developed countries . . . the conditions for the full opening of yuan business are still not ripe,' said People's Bank of China (PBOC) deputy director of foreign financial institutions Zhang Xunhai at a summit organised by the World Economic Forum.

Beijing, however, would gradually relax restrictions on yuan business of foreign banks as well as increase the number of foreign banks and mainland cities allowed to carry out these activities.

Only nine foreign banks - among them Citibank, Hongkong Bank and Bank of Tokyo-Mitsubishi - were allowed to conduct business in the local currency in Shanghai's emerging business district of Pudong.

All have commenced business but they can only deal with foreign-funded enterprises in Shanghai and are banned from taking yuan deposits from, or making loans to, mainlanders and domestic enterprises.

Foreign banks said this deprived them of a key source of yuan and severely limited their business, and they had been lobbying to get rid of the restriction.

Mr Zhang said liberalisation was being considered in the regulations governing working capital and ratio of yuan borrowings in the interbank market of the nine banks and for permission for more banks and more mainland cities to do yuan business.