o 2006 International Monetary Fund WP/0629 IMF Working Paper Asia and Pacific Department The rise of foreign Investment in China's banks--Taking stock Prepared by Lamin Leigh and Richard Podpiera Authorized for distribution by Jahangir Aziz December 2006 Abstract This Working Paper should not be reported as representing the views of the Ime The views expressed in this Working Paper are those of the author(s)and do not necessarily represent those of the IMf or IMF policy. Working Papers describe research in progress by the author(s)and are ublished to elicit comments and to further debate The recent wave of foreign investment in China's banks and the prospects of further opening of the banking sector under the WTO agreement suggest that foreign banks are likely to play an increasingly important role in China. This paper takes stock of the involvement of foreign banks in the Chinese banking sector in the perspective of international experience. While in most other countries foreign bank entry took the form of direct takeover or majority shareholding, foreign investments in Chinas banks have been minority shareholdings with very limited management involvement. The paper concludes that China appears to be well positioned to benefit from further opening of the banking sector to foreign investors International experience suggests that greater competition from and participation of foreign banks can in general bring important benefits if appropriate incentives and sufficient opportunities are created JEL Classification Numbers: G21 G28 Keywords: Foreign investment, China, banks, WTO, banking reforms Authors'E-Mail Addresses: leigh @imf. org, rpodpiera@imf. org The authors would like to thank--without implicating-Jahangir Aziz, Brian Aitken, and Steven dunaway for their useful comments© 2006 International Monetary Fund WP/06/292 IMF Working Paper Asia and Pacific Department The Rise of Foreign Investment in China’s Banks—Taking Stock Prepared by Lamin Leigh and Richard Podpiera1 Authorized for distribution by Jahangir Aziz December 2006 Abstract This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. The recent wave of foreign investment in China’s banks and the prospects of further opening of the banking sector under the WTO agreement suggest that foreign banks are likely to play an increasingly important role in China. This paper takes stock of the involvement of foreign banks in the Chinese banking sector in the perspective of international experience. While in most other countries foreign bank entry took the form of direct takeover or majority shareholding, foreign investments in China’s banks have been minority shareholdings with very limited management involvement. The paper concludes that China appears to be well positioned to benefit from further opening of the banking sector to foreign investors. International experience suggests that greater competition from and participation of foreign banks can in general bring important benefits if appropriate incentives and sufficient opportunities are created. JEL Classification Numbers: G21, G28 Keywords: Foreign investment, China, banks, WTO, banking reforms Authors’ E-Mail Addresses: lleigh@imf.org, rpodpiera@imf.org 1 The authors would like to thank—without implicating—Jahangir Aziz, Brian Aitken, and Steven Dunaway for their useful comments