China will open further to foreign-funded financial institutions now that it has been admitted to the World Trade Organization (WTO).

Foreign banks can offer foreign exchange services to institutional and retail customers in China from Tuesday, when the country officially becomes a member of the World Trade Organization (WTO), the country's central bank said on Sunday.

However, the People's Bank of China (PBOC) said foreign banks intending to provide hard currency services to Chinese customers need to replenish themselves with additional capital.

Overseas financial institutions in Tianjin and Dalian will be allowed to apply to engage in Renminbi business starting the same day, according to PBOC sources.

China will allow overseas financial institutions to provide foreign exchange services to all units and individuals within Chinese territory, on condition that the institutions accordingly increase their operating capital or minimum capital requirements, and change their operation licenses.

Starting December 11, overseas non-banking financial institutions may apply to establish companies in China specializing in car credit purchase services in accordance with regulations soon to be publicized by the PBOC.

Overseas investors will also be allowed to apply to establish companies providing financial leasing services in China, PBOC sources said.

Global Integration

The opening-up of China's banking sector will improve capital structure of Chinese banks, increase capital inflow, bring in modern management and expertise and standardize credit and financial transactions.

At the end of September, there were 190 foreign operational financial institutions including 158 branches and 9 sub-branches. The total assets of foreign banks amounted to US$44 billion. Their loans totaled US$18.6 billion and deposits US$6.5 billion.

WTO will also inevitably bring challenges, including competition for good customers, talents and market share. By deepening domestic bank reform and coping with various challenges, Chinese banks will be able to strengthen their competitiveness.

As the WTO accession will also have implications for macroeconomic management and financial supervision, China will continue its prudent reform approach and sound monetary policy to avoid either inflation or deflation and maintain financial stability.

Earlier, a PBOC spokesman emphasized the implementation of various measures.

Financial laws needed to be reviewed and updated. So far, China has abolished six batches of financial laws and regulations, and the work is underway.

Commercial bank reform will be deepened to improve their corporate governance. One Hundred joint-equity banks have been established.

Monetary policy will be appropriately designed and implemented to create sound macroeconomic environment for financial reform and development. Interest rate reform and RMB convertibility under capital account will be steadily promoted.

Supervision will be strengthened to dissolve financial risks and secure financial stability with the focus on promoting corporate governance of commercial banks. Meanwhile, Basle supervision principles are to be implemented to reduce NPL ratio and increase transparency of supervision on banks.

Credit culture will be developed.

Financial regulatory and supervisory regime will be improved to strengthen coordination among supervisory agencies in banking, securities and insurance industries.