Introduction to Foreign Investment in the Banking Industry

Foreign banks usually set up their branches in China -- initially from special economic zones to coastal areas and then to provincial capital cities, as well as major economic cities in inland areas. This kind of distribution is consistent with the country's opening-up initiatives.

Currently, there are more than 30 cities that are permitted to establish operational foreign institutions, among which foreign financial institutions are concentrated in Beijing, Shanghai, Guangzhou, Dalian, Shenzhen, Tianjin and Xiamen. The Japanese Bank took the initial step by setting up the first representative office of foreign financial institutions in China in 1979.

Since then, Chinese banks began taking advantage of foreign investment. In 1982 the Hongkong Nanyang Commercial Bank established its first foreign branch in Shenzhen. Xiamen International Bank, the first Sino-foreign joint venture (JV) bank was set up in 1985. With a rapid increase of foreign investment in China since the 1990s, more and more foreign financial institutions have entered the Chinese market.

Between 1995 and 1996, 30 foreign banks -- one Sino-foreign JV bank, as well as representative offices of more than 140 foreign financial institutions -- have been authorized to start business in China. In recent years, the Chinese financial market has opened up quickly and the foreign exchange reserve has also increased.

By the end of June 2000 the total assets of all foreign banks in China reached US$32.3 billion. Thirty-two foreign banks have been given the green light to operate financial businesses in Shanghai and Shenzhen, with clients from as far as Jiangsu, Zhejiang, Guangdong, Guangxi and Hunan.

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