Tuesday, April 17, 2007

China Further Liberalizes its Banking Sector

A story in a weekend edition of the SCMP reports:

"The mainland's banking regulator will allow the country's 114 city commercial banks to expand their businesses nationwide, a move that will strengthen their competitiveness and boost their attractiveness to investors."

Read more here.

In other words, from now on the city banks would be free to build their branches nationwide and diversify their businesses as well as risks. Needless to say this policy is a boon to these city commercial banks.

This policy certainly is not what the dominant players like Bank of China and ICBC would like to see though. Because the new policy would inevitably intensify the competition between the city banks and the dominant players. And it is not hard to imagine that the dominant players would try very hard in lobbying the government to prevent this policy from implemented in the first place.

The question is then why these dominant players would let this happen, why now?

I guess this might have something to do with the fact that foreign banks now could, on paper at least, compete head on with the Mainland's dominant players on a level playing field starting this year as part of China's fulfilment of its WTO commitments. Read more here.

Afterall, if you would have to compete with the likes of Citibank and HSBC, you wouldn't mind letting the city banks jump into the fray, would you? Hence, the timing of the policy.

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