Meet China's first rural joint venture bank
February 28, 2012 | BY
clpstaff &clp articles &The first rural joint venture bank has opened in Ningbo – a sign of the increasing modernisation in China's regions
Ningbo, a port city in eastern China's Zhejiang province is now home to the country's first regional joint venture bank. The Bank of China and Fullerton Financial Holdings, a subsidiary of Singapore-based Temasek Holdings, jointly established the joint venture BOC Fullerton Bank on February 21, 2012, according to Xinhua.
While the threshold for entry into this market is likely to be lower, the local authority retains control in some areas and investors need to position themselves well for the different market conditions.
“Investors need to come to a consensus with domestic partners on business strategies, corporate management and proposed aims. More importantly, they should tailor products to the needs of the rural population,” said Sun Hong, a partner at Norton Rose in Shanghai.
“Business experience in rural markets is important. Otherwise, they won't be able to enjoy the benefit of the market, even though there is support from the local government,” she added.
The urbanisation of China's rural areas has brought a growing demand for capital, monetary transactions and larger savings. However, activity is less intense than in cities like Beijing and Shanghai.
Multiple policy incentives at the local-level make it an attractive place for investors. Gan Weimin of the Hangzhou-based High Mark Law Firm notes that foreign institutions are entitled to governmental subsidies and favourable polices in taxation.
“It might not be easy for investors to adapt to business models in regional areas in the beginning, but highly regulated and sophisticated management systems can be a big advantage” he said.
The China Banking Regulatory Commission (CBRC) first introduced rural banks in 2006. Since then the Commission has relaxed the threshold requirements for entry into the rural market by way of several circulars and measures.
In July 2011, the CBRC retained its power by determining the originating banks, the number of branches and business locations. These were stipulated in the Circular on Matters Relevant to Revising the Approval Procedure for the Establishment of Rural Banks (关于调整村镇银行组建核准有关事项的通知).
“It means that the power is no longer delegated and the central authority remains prudent, apparently, proper dealings with the regulatory body are crucial” said Sun.
The July 2011 policy is not limited to banks, as it refers to all foreign financial institutions. There is no provision defining financial institutions, although it appears to fall within the CBRC's discretion.
“There are criteria that they could follow under the PRC Regulations for the Administration of Foreign-invested Banks (中华人民共和国外资银行管理条例) promulgated by the State Council in 2006,” said Sun. For example, the total sum of capital of the preceding year should be no less than $1 billion; it should be profitable in the last two consecutive years and be in operation in China for more than three years.
By Janice Qu
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