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The historic agreement reached by China and the United States on China's accession to the World Trade Organisation (WTO) is a win-win arrangement to the benefit of American export-related jobs, Chinese economic reform and global trading as well as the long-term US-China relationship.
This agreement provides US agricultural and industrial products and services including financial services with significant business access to China. Given the above situation, the Chinese banking industry will face a direct challenge from foreign banks. At the moment, foreign banks are not permitted to conduct RMB business for Chinese clients (a few can provide RMB services to their foreign clients). Also, China imposes severe geographical restrictions on the establishment of foreign banks. In the WTO agreement, however, China has committed to full market access after the fifth anniversary of the agreement for US banks. Foreign banks will be able to conduct RMB business with Chinese enterprises starting two years after accession, and with Chinese individua ls, from five years after accession. Till then, foreign banks will have the same rights as Chinese banks do in the designated geographical areas. Therefore, after entry into WTO, the previous restrictions imposed on the scope of business, the organizational structure and the objects of services of foreign banks will be gradually released or abolished in accordance with the requirements of market access and general principles of national treatment. Foreign banks have significant advantages in terms of organizational structure, scale and management, even though Chinese banks enjoys quality bank assets, competent personnel and extensive service networks . As a result, China is facing a great challenge to develop its national financial market and maintain the competitive edge of its national banks. Additionally, globalization of economy and technology makes the Chinese banking industry inextricably involved in international competition. Plus, China will be under pressure from various sources such as foreign banks' operation of capital accounts and enhancement of the PBOC's role as the supervisor of the banking system. As an officer of the Regulatory Bureau of the People's Bank of China said at a seminar held in Guangzhou, China's accession to the WTO brings new opportunities as well as challenges for domestic banks. It may result in a fresh round of restructuring of Chinese financial institutions to deal with the competitive edge foreign banks have over Chinese banks in operation systems and management skills, and in incentives they offer to their employees. At present, in terms of investment quality, the four commercial banks in China are not doing well. Investment returns fall far below the average 2 per cent obtained by banks in the West. However, considering the four commercial banks jointly have a financial network of over 140,000 offices throughout the country, and most of the State-owned enterprises are still heavily reliant on domestic banks, it is unlikely foreign banks will quickly grab a large share of the market right after China's accession to the WTO. Access to foreign banks will certainly make available much improved services for customers. Meanwhile, foreign banks will not only introduce advanced technology and management skills and help train more financial experts, but also will they bring more cash flow and more foreign trade deals. Therefore, based on the above analysis, China's entry into the WTO is not only a challenge but also a good opportunity. The article is contributed by the AllBright Law Office, a major partnership law firm in Shanghai. For more information, please call (8621)5049-8946 Shanghai Star |
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