"As for SMEs, foreign banks' involvement in renminbi business provides them another way to raise money," said Liu.

The other highlight is that Chinese people will have more investment opportunities. Many financial services, including housing mortgage loans, medical insurance, car loans and educational loans, are not well developed. People tend to determine how much to spend in the future based on their current income.

Now, faced with foreign investment ideology, more and more Chinese will turn into investors rather than mere depositors.

Su Ning, Vice Governor of the People's Bank of China, believes the opening of the financial market will push financial institutions to create new services for consumers.

After China's accession to the WTO in 2001, China's financial industry was forced to innovate to provide new financial products like credit cards and housing loans.

"The opening up of the financial industry brings us advanced financial technology, financial service and financial product designs," Su said.

"In addition to the opportunities and benefits, foreign financial institutions have also brought about a negative impact, which cannot be neglected," said Xu Hongcai, professor with the Capital University of Economics and Business.

Xu contended foreign financial institutions could drain the talent of domestic institutions.

According to Xinhua News Agency, Peter Wong, Executive Director of HSBC, said HSBC planned to add 2,000 more employees on the Chinese mainland. By the end of 2007, the number of HSBC employees on the Chinese mainland will surpass 4,000. Meanwhile, Standard Chartered, Heng Seng Bank and Bank of East Asia are also rapidly expanding and recruiting more people.

"Foreign financial institutions must localize, and so must their employees. As a result, more talented financial personnel will be lost to foreign institutions," said Xu. "The real challenge will be in the few years ahead."

Wang Zhao, a researcher with the Development Research Center of the State Council, noted that the entry of foreign financial institutions imposes difficulties on managing financial institutions. "First of all, it will be hard to coordinate monetary policy," said Wang.

Further, he said, in 1997 China successfully overcame the Asian financial crisis because its financial market was not fully opened to the world. Under the current situation, any tiny fluctuation in the world financial market will affect the Chinese market.

Future development

From now on, the Chinese financial system will undergo significant change, said Xu Mingqi, an economic researcher with the Shanghai Academy of Social Sciences.

Xu believes that the competition among financial institutions will change the operational model of Chinese banks.

Xu noted that in the short term, despite the fact that the market share of foreign financial institutions is incomparable to that of Chinese financial institutions, fierce competition would still arise.

"One element should not be neglected: Foreign financial institutions' advantage in terms of mixed operation will win them a competitive edge in the Chinese financial service competition," said Xu.

His view is echoed by Huang Yanfen, a business professor with the Guanghua School of Management of Peking University. Huang pointed out that mixed operation is the focus of competition in the future Chinese financial sector.

Huang noted that for a long period of time, the Chinese financial industry has been operated separately, which means that banking, securities and insurance operate on their own. Although this separated pattern is helpful to control financial risks, mixed operation should be adopted by the Chinese financial industry, which will ease its disadvantages in an open market competition. Therefore, breaking down the current separated operation pattern is the key to China's financial restructuring.

"Mixed operation is a trend for the financial industry," said Huang.

Huang believes that competition makes the domestic financial market more globalized.

The lifting of restrictions in the Chinese financial market is helpful for foreign companies' entry into China's market, and at the same time cultivates domestic financial institutions to become stronger in an environment full of international competition.

"The opening up of China's financial market also stimulates the integration of Chinese laws and regulations into common international practice," Huang said.