New terms for renminbi business by foreign banks

September 01, 2006 | BY

clpstaff

The China Banking Regulatory Commission (CBRC) has circulated a draft notice detailing the requirements for foreign banks to conduct retail business in…

The China Banking Regulatory Commission (CBRC) has circulated a draft notice detailing the requirements for foreign banks to conduct retail business in the renminbi. The new rules form part of China's pledge to fully open the local currency market to foreign competition, pursuant to its agreement with the World Trade Organization.

Under the requirements, foreign banks may be required to incorporate their local operations in China as PRC-registered companies and capitalize their entities with at least Rmb1 billion (US$125 million), The Wall Street Journal reports.

Currently, foreign banks manage their PRC branches from their overseas headquarters, can handle loans and deposits in foreign currencies and can only provide renminbi-denominated services to enterprises.

The rules are intended to put foreign and local banks on an equal footing, as the new requirements are the same as those currently provided for domestic banks. However, no final decisions have been made on the regulations, and many bankers are concerned that the regulatory authorities may create new tax and legal implications that could lead to increases in costs for foreign banks. The CBRC held meetings with banks on August 22-23 2006 to discuss the rules.

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