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SCMP Reporter

CHINA'S attempt to cool its overheated economy has sent an earthquake through the mainland banking sector, but has left the foreign banks unscathed.

  Despite the system being re-shaped from top to bottom, institutions prohibited from dealing in yuan have seen little effect.

  But life is unlikely to remain so placid for the foreign operators. As the credit crunch starts taking its toll on local enterprises, they will face an increasing level of enquiries about lending.

  Bank of East Asia's China division head Raymond Yu said: ''In recent months, we have had more trade finance business than before. Enterprises that cannot obtain credit from the local banks come to us.''   Requests for short-term financing were also on the rise, with companies worried about liquidity and seeking funds for operating expenses, he said.

  ''Mainland banks have to adhere to lending limits now, while foreign banks lend on commercial considerations,'' Mr Yu said.

  Another major foreign operator in China, Hongkong Bank, reports the same trend.

   ''We are aware of the higher level of enquiries from China corporations for loans in recent months,'' said the bank's assistant general manager, Anthony Russell.

  ''I guess that is a natural phenomenon when the domestic banks are facing a credit squeeze and are short of cash.''   But the banks emphasise that more enquiries do not mean more lending.

  On the other side, domestic mainland banks are fighting to keep their clients by taking advantage of their most competitive weapon, the yuan business.

  ''The real problem for foreign banks these days is that domestic banks attach conditions on their yuan loans. Even though the clients might prefer other services from foreign banks, they have to use the domestic banks because that's part of the deal,'' Mr Russell said.

  Mr Yu said this phenomenon has existed for some time and was a way for domestic banks to hold their position over foreign banks.

  Another hurdle facing foreign banks is the uncertainty hanging over China's monetary reform, with the drafting of the banking law well under way.

  A Standard Chartered Bank China division spokesman predicted that the law would not bring too many changes to the foreign banks.

  ''We probably will have to present more information on our monthly returns to facilitate the Government's compilation of statistics,'' he said, tipping that the major changes were likely to be seen on the domestic banking scene.

  ''The central bank needs to develop an interbank market and an effective clearing system,'' he said.

  At present, China does not have a clearing system and therefore no cheque accounts. People carry bulk cash around when making large purchases.

  Although foreign banks are eager to provide yuan services, they realise that the relaxation will not come soon.

   ''I hope that foreign banks can operate yuan business in five years' time. That will open up a whole range of service areas,'' the Standard Chartered spokesman said, adding that the one-branch-one-city policy also was a major limitation.

  ''Shanghai is a big city, but if you have a branch in Puxi, you can't have another one in Pudong. I can't see why we can't while McDonald's can,'' he said.

  Furthermore, the Government does not give out general information concerning other foreign banks' operations on a regular basis, the usual practice in Macau and Taiwan.

  Besides the regulatory environment, foreign banks in China have to face another challenge - competition among themselves and with foreign firms.

          Shanghai is described as the city with the toughest competition among foreign banks, with one of the main areas of conflict being staffing.

  ''A secretary was taken from us by an American firm in Shanghai which offered eight times her present salary,'' Mr Russell said.

  Experienced banking staff in China are hard to find, with some banks preferring to offer higher salaries to people already employed by other foreign banks.

  ''In some cities, salaries goes up well above the rate of inflation,'' he said.

   The ultimate cause for concern is the discrepancy in salary levels between local and foreign banks, he said.

  To aggravate the situation, Mr Yu said other non-bank foreign companies like to poach bank-trained staff for their accounting and finance divisions.



Mainland economy moves tipped to lift loan applications