China said yesterday that foreign banks could enter five more cities to do renmini business, honouring its commitment to open up the financial sector.

According to China's World Trade Organization (WTO) commitments, foreign banks will also be allowed to provide local currency services to Chinese enterprises in Beijing, Kunming and Xiamen starting yesterday. In addition, the cities of Xi'an and Shenyang are opened up in the move -- one year ahead of schedule.

That brings the total number of cities where foreign banks can offer renminbi business to 18. They are not currently allowed to provide renminbi services to Chinese individuals.

China allowed foreign banks to provide local currency services to Chinese enterprises one year ago, which analysts say was of great significance since it allowed foreign blood into its internal business cycle.

The reason Xi'an, in Northwest China's Shaanxi Province, and Shenyang, in Northeast China's Liaoning Province, are being opened one year early is to promote economic growth in the regions, said Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC).

China is making efforts to accelerate growth in the less-developed west and northeast regions, pouring in huge investments.

The CBRC also announced favourable policies yesterday to encourage foreign banks' investment in the nation's west and northeast regions, allowing them to apply for new branches in those areas as long as their entire Chinese operations are profitable. Profitability will be otherwise examined on a branch-by-branch basis.

The arrival of foreign banks has benefitted the local banking industry and customers with new services, managerial expertise and methodologies, Liu said.

Foreign banks have launched more than 100 banking products in the local market. "That is three times what domestic banks are providing," he said.

"And they have been performing well," Liu added. "Their aggregate non-performing loan ratio is only 1.3 per cent, and is declining month by month."

Foreign banks set up 204 operational entities in China by the end of October, with total assets amounting to 553.4 billion yuan (US$66.7 billion), up 41 per cent from a year earlier, CBRC statistics indicate.

Some 105 foreign banks have won renminbi licenses, 61 of which have been allowed to provide renminbi services to Chinese enterprises.

Although they account for only 1.8 per cent of all banking assets in China, foreign banks have grabbed 18 per cent share of the foreign currency lending market.

Foreign banks' pre-tax profit totalled 1.74 billion yuan (US$209 million) for the first 10 months of this year.

"That was a very good performance," Liu said.

The official also said foreign banks' equity participation in Chinese banks has been beneficial to the local consumers of financial services and the stability of the Chinese banking industry.

Nine Chinese banks have ushered in foreign investors, while another nine are in the middle of negotiations with foreign banks about possible equity investments.

"Although the co-operation is only in the early stages, we are happy to see changes are already taking place in such areas of operational mechanisms and the credit culture. And the impact of such changes will be far-reaching," Liu said.

"We are ushering in foreign investment not just for capital, but to propel banking reforms and improve the international competitiveness of the Chinese banking industry," he added.

(China Daily December 2, 2004)