China's Opening to the World: What Does It Mean for U.S. Banks?

China has agreed to open its financial system to full foreign competition in December 2006 in accordance with its commitments to the World Trade Organization (WTO). In regard to banking, it has committed to remove all geographic, client, and nonprudential restrictions on foreign banks. What does thi...

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Bibliographic Details
Published in:FDIC Banking Review 2005-07, Vol.17 (3), p.1
Main Author: Craig, Valentine V
Format: Article
Language:English
Subjects:
Bailouts
Bankruptcy laws
Banks
Bond markets
Capital markets
Corporate bonds
Corporate governance
Corruption
Economic growth
Economic statistics
Economics
GDP
Government bonds
Gross Domestic Product
Households
International markets
International trade
Middle class
Public enterprise
Shareholder activism
Stock exchanges
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Summary:China has agreed to open its financial system to full foreign competition in December 2006 in accordance with its commitments to the World Trade Organization (WTO). In regard to banking, it has committed to remove all geographic, client, and nonprudential restrictions on foreign banks. What does this financial opening mean for foreign banks? This article examines in detail the opportunities and risks of entry into the Chinese market for U.S. banks. The article begins with a review of recent statistics on Chinese growth and prosperity. It then appraises the competitive landscape for US bank sin China, examining the Chinese capital markets, the official Chinese banks, the informal Chinese banks, and foreign banks currently operating in China. The article then looks at the specific opportunities opening up in China in retail, commercial and investment banking. The article examines the economic, political and demographic trouble spots in the economy that could affect businesses operating in China. It discusses fears of an overheating market, possible protectionism by those countries to which it exports its goods, rising economic inequality in the country, and China's rapidly aging population. It then looks at the risks arising from an uncertain regulatory environment and large unwieldy government bureaucracy. It then appraises the systems from ensuring a safe return of capital, concentrating on the adequacy of China's bankruptcy laws, the enforcement of contracts and legal judgements, the adequacy of its credit infrastructure, the availability of crucial personnel, and the government's commitment to open competition.
ISSN:1041-939X