China To Allow Foreign Banks To Trade In Local Currency

Di Weiping, deputy director of the foreign financial institutions would initially be restricted to Shanghai's Pudong development zone. Di Weiping, deputy director of the foreign financial institutions department of the People's Bank, said just a few banks would be selected for a pilot programme in Pudong. People's Bank, China's central bank, had received expressions of interest from "several dozen" banks, but preference would be given to those which were "longest- established" in Shanghai. Di said a decision was likely by the end of the year on the successful applicants. He also indicated the experiment might be extended to the whole of Shanghai and to other special economic zones. Foreign bank branches have long been pressing for permission to engage in local currency business, arguing they should be allowed to compete directly with Chinese banks. But the authorities have moved slowly to sanction such a step because of concerns about inadequate regulatory resources at the People's Bank. They have also responded to pressure from Chinese banks which fear competition. But Di said Chinese financial institutions "are getting used to competition" after 16 or 17 years of the opening up of the Chinese economy. Clearance for a handful of foreign banks to engage in yuan business would not pose a serious threat to local banks. To trade in local currency, banks would have to have been established in China for at least three years, to have been profitable for the past two years, and to have had average monthly outstanding loans of $100m for the previous year.