China’s New Foreign Bank Regulations


Xiuying Jin and Richard Lung

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May 31, 2007

The promulgation of Regulations for the Administration of Foreign-Funded Banks on November 11, 2006, marked the beginning of a new chapter for foreign banks in China. Foreign banks can now offer commercial banking services to any customer, regardless of their nationality, everywhere in China. The opening of the Chinese banking market, however, has come with significant conditions. Only those banks that choose to incorporate their operations in China will be allowed to provide a range of services on par with their domestic counterparts. This restriction, coupled with a higher minimum capital commitment, has effectively raised the costs for foreign banks wanting to enter or to expand their operations in China. This Asia Focus provides a brief summary of foreign banks’ experience in China, an overview of the new capital requirements and their impact, and a review of the operational challenges foreign banks will face in complying with the new regulations.