On March 21, four overseas banks, including Hong Kong and Shanghai Banking Corp. (HSBC), Citibank, Standard Chartered Bank and Bank of East Asia got the nod from the China Banking Regulatory Commission (CBRC) to incorporate locally, enabling them access to the renminbi retail sector. Service is expected to begin in April after the banks complete their registration.

Before the new regulations, China removed many of its business restrictions on overseas banks in December 2006 to fulfill its WTO commitments. With this recent decision, overseas banks hoping to attract renminbi deposits below 1 million yuan from Chinese citizens must register their branches locally.

The local incorporation of HSBC will have a positive impact on the Chinese financial market in a long run, said Vincent Cheng, Chairman of the HSBC Ltd., who will be appointed chairman of HSBC's newly registered local branch in Shanghai, according to a report from Xinhua.

While the new regulations may be exciting news for overseas banks, it does pose a greater challenge to Chinese banks, which feel urgent need to seek innovations.

Competition begins

Accounting for merely 1.89 percent of banking capital in China during 2005 (figures for 2006 have not yet been released), overseas banks grabbed 20.97 percent of foreign exchange loans in the country in that year. These figures are up 6.27 percent compared to 2001, according to last year's China Industry Annual Report on Banking released by China Economic Information Network.

"The advanced management, comprehensive services and multinational network of overseas banks will pose great challenges for domestic banks to retain their high-end clients," said Yang Deyong, Dean at the School of Economics of Beijing Technology and Business University. "The competition will be fiercer in foreign exchange business, overseas investments and commercial banking."

The banking report also said Chinese banks need more innovation to improve banking services apart from traditional deposit and lending clients.

"Commercial services from Chinese banks are less innovative and lack variety," said Yang. "While there are hundreds of banking services from overseas banks, there are only dozens of products from Chinese banks."

The heated competition in the banking sector also extends to human resources.

On March 23, there were more than 20 job vacancies, including relationship assistant and regulatory reporting officer, posted on HSBC's website for its Shanghai and Guangdong branches. A recent report compiled by Price Waterhouse Coopers stated that employment levels among 35 overseas banks operating within China will grow by 154 percent, for a total of 16,910 employees by 2008.

"The opening of the renminbi retail sector will probably encourage overseas banks to expand their networks in China, and the banks are thirsty for employees," Yang continued. "Overseas banks usually favor experienced talents who worked for Chinese banks and are able to bring an abundance of clients from their domestic rivals."

Individual training and job assessment are big attractions for job hunters, something usually specified in overseas banks. More importantly, these banks offer high salaries for talented employees.