What requirements do foreign financial companies have to meet in order to participate in the Chinese market?
Basic asset requirements of US$ 10 billion in global assets for subsidiary or joint venture operations and US$ 20 billion for foreign bank branches, significantly limit the number of potential foreign entrants. The rules also lay out a detailed matrix of services (client and foreign/local currency), venture type (subsidiary, wholly foreign-owned, or joint venture), and entity (bank or financial company) with corresponding minimum investment levels starting at US$ 30 million and reaching as high as US$ 120 million, though a portion of this capital may be injected using RMB.
Several other regulatory requirements restrain the growth and profitability of foreign banks. For example, all banks must now adhere to the government-set band for foreign-currency deposit interest rates. PBOC extended the restraints on PRC residents' foreign-currency deposits of less than US$ 3 million to foreign banks in March 2002, just as it began issuing licenses to foreign banks to enter the market. In addition, foreign banks may only establish one branch per year and are subject to high fees on the interbank lending market. China does not have to lift the requirement that a foreign bank's RMB lending not exceed 50% of its foreign-currency liabilities until December 11, 2006. This restriction presents a significant barrier to rapid expansion in the short term for foreign financial companies.