VZCZCXRO8084
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0413/01 2622338
ZNR UUUUU ZZH
R 192338Z SEP 06
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 3646
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI
UNCLAS SECTION 01 OF 02 GUANGZHOU 030413
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TREASURY FOR OASIA/ISA KOEPKE AND DOHNER
STATE PASS CEA FOR BLOCK
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER
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STATE ALSO PASS USTR STRATFORD/WINTER/MCCARTIN
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E.O. 12958: N/A
TAGS: EFIN ECON EINV WTRO CH
SUBJECT: Foreign Banks in South China Continue to Face Regulatory
Barriers
REFERENCE: Guangzhou 5379
(U) This message is sensitive but unclassified. Please handle
accordingly.
1. (SBU) Summary: Foreign bank representatives based in Guangzhou
reviewed with the Consul General at a lunch on September 18 barriers
that continue to limit the expansion of their market share. These
include lending caps, high capitalization requirements, RMB 1
million minimum deposit for RMB customers, and a limit to two new
branches per year. China may have committed in the WTO to open the
market to foreign firms fully by the end of 2006, but they expect -
and did not seem too concerned that - the transition will be more
gradual. They also said Guangzhou has a "critical" shortage of
skilled professionals in the banking industry. End Summary.
Ready for RMB Business
----------------------
2. (SBU) Bank of America's Guangzhou Branch Manager Julia Yu said
seven foreign banks in Guangzhou had received licenses to conduct
RMB business, and they were awaiting further guidance from
regulators. Citibank's Guangzhou Branch Manager Milson Lau said
CBRC will require that any foreign bank branch register as a PRC
company prior to conducting RMB business; he pointed out that this
would adversely affect the branch's credit rating. All of the
representatives (which also included those from Deutsche Bank and
Bank of Montreal) complained that the RMB 1 million minimum deposit
requirement for domestic clients is too high, though Lau conceded
that most banks would likely select only upper-tier client during
the initial stages.
Lending Caps/Regulation Overload
--------------------------------
3. (SBU) The bankers also complained that their lending volume was
restricted by China's foreign bank quotas, which govern bank loans
that are based on letters of credit from the parent bank abroad
(this is the case for most loans). Bank of America has raised the
issue directly with regulators but has seen no significant change.
Deutsche Bank's Guangzhou Branch Manager Myron Shi estimated that
national and local regulators have issued 200 banking-related rules
and regulations during the past year. The bankers said many of
these documents include significant overlap, and determining which
rule to follow can be difficult.
SAFE Finally Puts It in Writing
--------------------------------
4. (SBU) Citibank's Lau, who currently heads the Guangdong Foreign
Bank Liaison Committee which represents the interests of foreign
banks in Guangdong, noted that SAFE recently responded in writing to
a question regarding the interpretation of a banking regulation.
This was the first time in his experience that SAFE had been willing
to clarify an interpretation in writing instead of verbally. The
bankers mentioned that communication between them and CBRC and the
People's Bank of China had also improved somewhat this year.
Help Wanted
-----------
6. (SBU) The banks all agreed that Guangzhou faces a significant
shortage of skilled professionals in the banking industry.
Citibank's Lau said this is particularly true for marketing
positions. Bank of Montreal's Guangzhou Branch Manager Brendan Wong
estimated employee turnover at his office to be between 33 and 50
percent annually. Deutsche Bank and Bank of America estimated their
turnover to be approximately 20 percent.
Citibank on Guangdong Development Bank
--------------------------------------
7. (SBU) Citibank's Lau insisted that the bid by Citibank and its
partners for Guangdong Development Bank had not been approved,
despite press reports stating it had been. Though he is not
involved in the negotiations, he said Citibank is intent on gaining
management control in the deal. He characterized the lengthy
approval process as an example of the disconnect between local
regulators (who allowed it to move forward) and national regulators
GUANGZHOU 00030413 002 OF 002
(who decided it had gone too far). He added that buying a domestic
bank with its branches already established is the most efficient way
to enter the China market.
Comment
-------
8. (SBU) These issues have been around for many years, and are
unlikely to disappear by the end of the year. Deutsche Bank's Shi
characterized China's banking policy as "two steps forward, one step
back." The representatives were not openly critical of the central
government's overall approach to banking regulation and seemed
content to deal with difficulties as long as they continue to earn a
profit.
GOLDBERG