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THE DEADLINE IS fast approaching for Beijing to open the last remaining doors to foreign lenders and allow full competition in all banking services.

On December 17,  the five-year phase-in period negotiated under the terms agreed for entry to the World Trade Organisation (WTO) will end.

Overseas banks already operating on the mainland under gradually reduced restrictions will then be free to offer their full range of services to all local and foreign customers.

This will have an immediate impact on the mainland's banking sector,  according to Liao Qun,  the vice-president, chief economist and strategist of China banking for Citic Ka Wah Bank.

When the final restrictions are lifted, allowing foreign banks to offer retail banking services in yuan to mainland customers, Dr Liao predicts that there will be fierce competition between lenders as they fight for market share.

'This large market has been targeted by foreign banks for a long time, and its opening is poised to result in immediate developments,' Dr Liao said.

'The fight will be most intense in the areas of private banking and wealth management.'

Some sceptics believed Beijing might seek to delay the implementation of full banking competition to protect vulnerable domestic institutions, many of which  are saddled with  bad loans as a result of previous  policies.

But mainland authorities have not only followed the WTO timetable but actually beaten it. Zhou Xiaochuan,  the governor of the People's Bank of China - the country's de facto central bank - noted this achievement in a recent address to an international financial conference.

'China has made progress in financial opening up,' Mr Zhou told the Sino-French Financial Forum  in Beijing on September 21.

Quoting the latest available official data, he said that by the end of June,  71 foreign-funded banks had already opened 214 operational institutions on the mainland.

He said 25 cities had been opened for corporate yuan business, 26 foreign financial institutions had made equity investment in 18 domestic banks totalling US$17.9 billion and 42 foreign entities had become Qualified Foreign Institutional Investors.

'China has not only honoured the WTO accession commitments seriously, but also promoted, at its own initiative, yuan convertibility under the capital account by reducing or removing restrictions on capital account items in line with the economic and financial development situation,' Mr Zhou said.

The phased opening of financial markets was one of Beijing's 'fundamental state policies', he said, noting that the aim was also to push ahead with reforms to improve the structure of corporate governance and the management of domestic commercial banks.

Speaking earlier this year, Wu Xiaoling,  deputy governor of the People's Bank of China, acknowledged the benefits of opening up the country's financial sector. She said Beijing had moved away from a rigid doctrine that had focused on trying to minimise domestic and external debt, and was now learning to use financial instruments and foreign capital to develop the national economy.

'In conventional Chinese wisdom, borrowing becomes a feasible choice only when other options are exhausted,' Ms Wu said, adding that, in the past, mainlanders might have even felt some sense of shame when borrowing money.

No such considerations were on display last month when the Industrial & Commercial Bank

of China launched its initial

public offering, raising about US$22 billion.

It proved to be the largest capital-raising exercise seen anywhere in the world.

With the funds made available from such initiatives, mainland banks hope to fight off the challenge from overseas institutions.

'Foreign banks are expected to target high-end customers by utilising advanced products and services, while local banks will fight back by sharpening learning curves to deal with the competition,' Dr Liao said.

However things unfold, the extra competition will mean more job opportunities for bankers with the necessary skills and experience.

'In the short term, the main battlefields between local and foreign lenders will continue to

be Shanghai, Beijing, Shenzhen and Guangzhou, but this will

soon spill over into second-tier coastal cities such as Tianjin, Qingdao and Xiamen,' Dr Liao said.

The expected outcome of this is that the mainland's banking market will quickly become more commercial and more international. As a result, the total market share for foreign banks operating on the mainland is likely to hit 30 per cent by the end of 2011.



Foreign firms to shake up sector