BOC chief expects steady business and profits at local players even as market liberalisation gains pace After five years of panicky reforms, China's top bankers are now playing down threats from global banking giants such as HSBC and Citigroup in the liberalised mainland market. 'I am sure that over the next five years, foreign banks will increase their share of the Chinese market, probably by between 0.5 per cent and 1 per cent of the market each year,' Bank of China (BOC) president Li Lihui said. 'Chinese banks will lose some market share, but their business and profitability will not shrink because the overall market is growing fast.' On December 11, the fifth anniversary of China's entry to the World Trade Organisation passed with little fanfare, despite years of warnings that full foreign access to the mainland market would ring the death knell for the state-owned banking system. From that day, foreign banks that incorporate locally can offer most yuan-denominated businesses as their domestic competitors. So far, at least nine of the 27 foreign banks with mainland operations have applied to do so. The latest government figures show these foreign players have set up 191 branches and 61 sub-branches in 24 cities in the mainland. By comparison, BOC has about 11,000 outlets while Industrial and Commercial Bank of China has 18,000. The mainland assets in local and foreign currency of these foreign banks total US$105.1 billion, accounting for 1.9 per cent of the financial assets in China, while deposits reach US$33.4 billion, accounting for 0.77 per cent of the total. Loans are US$54.9 billion, or 1.8 per cent of all loans in China. 'Actually, between 2001 and 2005, the proportion of business taken by foreign banks in China [was] steady at less than 2 per cent,' Mr Li said. Mr Li's assessment is echoed by his counterparts, including China Construction Bank president Zhang Jianguo, who last month said foreign banks would find it hard to compete with the huge established networks and local knowledge of mainland players. This view is also shared by most analysts, who expect foreign banks to concentrate on their investments in existing mainland lenders rather than expand organically on their own. 'The bottom line is that we don't see the recent WTO opening as having any macroeconomic impact on the banking system in the foreseeable future,' UBS chief Asia economist Jonathan Anderson said. 'In fact, from many angles, the Chinese banking sector looks a lot like another high-profile part of the economy - the over-invested steel sector where foreigners are also not particularly excited about rushing into the market at this point in time.' The investments they do make in their own operations will be aimed at skimming off the most attractive high-end clients in China, the market segment BOC is itself hoping to lure in. Foreign banks are already concentrated in China's richest areas and have captured 13.41 per cent of the lucrative Shanghai market by assets. 'But further expansion will be restrained by costs, which are about 10 percentage points higher for foreign banks than local banks,' Mr Li said. He expects large banks such as Citigroup, HSBC and Standard Chartered to open between 20 and 50 branches each in the next few years - hardly a threat to a bank that boasts 120 million individual customers and more than 40,000 corporate clients.