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Foreign-funded Banks' Trilogy of Entry
Upon China's entry into WTO, foreign-funded banks' entry into Chinese financial market will act on such a trilogy: Vying for financial intermediary business, competing for deposits and loan business by foreign-funded enterprises and fighting for deposits and loan business of Chinese-funded enterprises.
Following WTO practice, foreign-funded banks can do RMB business serving Chinese enterprises two years after China's entry into WTO and provide service to individuals five years after. Foreign financial corporations are allowed to hold a 33% of share in fund-managed enterprises and this is to be raised to 49% three years later. Foreign banks will be able to enjoy the same rights (as the principle of national treatment) within the designated geographical sphere. However, after the opening up of finance, no drastic change will appear during a short period of time since the Commercial Bank of China runs a countrywide business network formed of 140 thousand business offices. Due to SOEs' great dependency on Chinese-funded banks for reform, foreign-funded banks are in no way in a position to take on a multitudinous number of clients from Chinese-funded banks within a short period of time. The first shock given by the entry of foreign-funded banks will be felt in intermediary business of international settlement involving little risk and cost but high profit and new businesses such as information consultancy, family investment and other competitive advantageous items.
After entering financial intermediary business, foreign-funded banks will compete with Chinese banks in winning clients of foreign-funded enterprises in China. Because of their natural links with foreign-funded banks and a further development of business in China, a large part of savings deposits and loan business by foreign-funded enterprises may be lost to foreign-funded banks.
The third stage of the trilogy is a scramble for the deposits and loan business by Chinese and foreign banks to serve Chinese-funded enterprises. After China's entry into WTO, Chinese enterprises will hasten their pace of opening up, thus strengthening the links with foreign-funded banks. With the deepening of SOE reform, they will lessen the dependency on state-owned banks. Besides, Chinese private enterprises have no close links with state-owned banks originally thus giving opportunities for foreign banks to win over Chinese enterprises.
Chinese enterprises must constantly renovate their marketing conception, financial tools, managerial system and transmission mechanism, enhance the legalization and standardization of financial market management to gradually form a mechanism to compete with foreign-funded banks.
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