China Opens Banking Sector, Creates Private Banks in 2014

China has announced it will be establishing three to five fully privately-owned banks in 2014 to help augur for the financial requirements of cash-starved smaller companies.

The China Banking Regulatory Commission (CBRC) made the announcement on Monday. In a statement posted on its Web site, the government regulator said the move will enable the country's banking sector to open up to domestic and foreign capital. It likewise promised to maintain "prudential regulatory standards" as it opens China's banking sector to the global public.

According to Ernst & Young LLP, HSBC Holdings Plc and Bank of America Corp are expected to be among the first foreign banks largely to benefit from China's expansion of financial freedoms.

The CBRC maintained groups planning to set up such banks need to adhere to strict procedures and standards. The commission will set-up criteria and issue limited licenses. It will also facilitate for the launch of the Shanghai free trade zone, according to its statement.

Lu Zhengwei, an economist at Shanghai's Industrial Bank, said the plan could help modernize China's heavily politicized baking sector.

"Privately financed banks would be more focused, with more realistic risk controls," Lu told Financial Post.

Over the past five years since 2008, banking assets in China have more than doubled. It is currently pegged at 147 trillion yuan (US$24 trillion) as of Sept 30.

According to Crien English, there is only one private-owned entity, the Minsheng Bank, that is included in the country's list of top 10 commercial lenders.

Global banks in China are restricted to add branches and offer products.

Without giving a timeline, the CBRC said it would "explore the gradual relaxation of barriers to foreign entry into the industry" and enable foreign institutions to handle China's tightly controlled yuan.