Banking News
- Overseas banks poised to offer broader choice
Date: 26-Mar-2007 Sources: (Xinhua Online)
Four overseas banks will be able to offer unlimited yuan services on the Chinese mainland next month after they incorporate locally.
They include Hongkong and Shanghai Banking Corp, Citigroup Inc, Standard Chartered Bank and Bank of East Asia. The China Banking Regulatory Commission approved the first wave of overseas banks to open up the market as part of the country's commitment to join the World Trade Organization.
Some local people can't wait to try services from overseas banks after having to line in queues for hours at domestic bank counters.
'I am quite interested to open an account at overseas banks to get better service,' said Xiao Zhu, a white-collar worker in her 30s.
Before local incorporation, overseas banks could only take term deposits of more than one million yuan (US$129,366), which restricted their clients.
Tax rates
The banking approvals followed China's newly announced corporate income tax rate of 25 percent for foreign and domestic companies from January 2008, a move which aims to level the playground for players from home and abroad.
Foreign companies now pay an average 15 percent tax while Chinese companies pay 33 percent, or an average levy of 25 percent after different deductions, Jin Renqing, the top head of the Ministry of Finance, said.
The current tax system prompted some domestic players to transfer capital overseas and then invest in the domestic market to enjoy the lower rate on overseas capital.
'The new corporate income tax law will add to foreign banks' tax in China on foreign currency business, but allows them to have a rate reduction on the yuan business to offset that effect,' said Ryan Chang, a tax partner of Deloitte Touche Tohmatsu.
At present, overseas banks pay 18 percent tax on foreign currency products while paying 33 percent on yuan products.
The new corporate income tax law means a higher tax levy on foreign banks and lower tax burden on domestic banks. However, locally incorporated overseas banks can offer a full array of products, broadly expanding their income channels, Chang noted.
His view is echoed by Walter Tong, a tax partner at Ernst & Young.
'Overseas companies are no longer eyeing China as a place with low labor costs or a lower tax rate,' said Tong. 'The big market itself is the ultimate driving force for more foreign players to rush into the country.'
Raymond H.K. Yu, general manager of Bank of East Asia's China division, said the Hong Kong-based bank will charge no account management fees for clients, even if they open an account with just one yuan deposit.
BEA aims to build up its brand with more products and service options for China's emerging middle class, he noted.
Overseas banks with big ambitions in China are all gearing up to offer more products.
Standard Chartered Bank plans to offer mortgages, credit cards, personal loans and wealth management to local Chinese after its incorporation.
Standard Chartered also plans to kick off a private banking service, targeting the high-end millionaire pool in the second half of this year.
Credit cards, mortgages and private banking are seen as lucrative sectors with China's emerging numbers of middle class and super rich clients.
Entering The Market
Overseas banks to open as locally incorporated entities in April (location):
Hongkong and Shanghai Banking Corp (Shanghai)
Citigroup Inc (Shanghai)
Bank of East Asia (Shanghai)
Standard Chartered Bank (Shanghai)
Overseas banks preparing for local incorporation (location):
Hang Seng Bank (Shanghai)
Mizuho Corporate Bank (Shanghai)
Bank of Tokyo-Mitsubishi UFJ (Shanghai)
DBS Bank (Shanghai)
ABN Amro Bank N.V. (Shanghai)
Wing Hang Bank (Shenzhen)
Overseas-Chinese Banking Corp (Shanghai)
JP Morgan Chase & Co (Beijing)
Overseas banks applied for local incorporation:
United Overseas Bank
CITIC Ka Wah Bank
Nanyang Commercial Bank
Source: China Banking Regulatory Commission
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