Following China's accession to the WTO in December 2001, foreign investment in China's banking sector has significantly increased. This has happened at a time when the global banking community, going along with recent trend, continues to experience a wave of restructuring and merger activities.
Implementing global bank mergers poses significant challenges to the merging banks, as a merger must occur in accordance with the laws of each jurisdiction in which banking assets are being transferred. These challenges are no less apparent in China, where the banking sector and the regulatory framework are much less developed than in the United States or Western Europe. This article briefly reviews some of China's banking regulations that affect the implementation of foreign bank mergers.
Regulatory Framework
Prior to September 2001, there was no published legislation in China on the regulatory framework for China's central bank, the People's Bank of China (PBOC), to approve foreign bank mergers. Foreign bank mergers were generally approved by the PBOC on a case-by-case basis based on internal rules.
On 29 September 2001, the PBOC published the Notice regarding Issues relating to Merger and Name Change of Foreign Bank Branches and Representative Offices in China (the Notice). The Notice sets out a two-stage approval process for foreign banks wishing to make a merger application to the PBOC prior to their merger in the relevant home jurisdiction. In the event of a two-stage approval, the merging banks may apply to the PBOC for 'in-principle' approval of the merger of their branches and representatives offices in China (the China Merger) prior to their merger in the home jurisdiction. Once their merger has occurred in the home jurisdiction, the merging banks may then apply for a PBOC 'final' approval of the China Merger. This means that the China Merger cannot occur simultaneously with the merger in the home jurisdiction.
The two-stage approval process described above is adopted in the Implementing Rules of Administrative Provisions on Foreign Invested Financial Institutions (the Implementing Rules) which came into effect on February 1 2002. The Implementing Rules also expressly permits the merging banks to go through a single-step approval process and apply directly for PBOC's final approval after the merger in the home jurisdiction has been formally approved by the financial regulatory authority of the home jurisdiction.