state-owned banks gathered speed and as the government began to permit higher foreign ownership Since 2004, foreign strategic investors have entered in four of the largest five banks. The 2004 purchase by Hong Kong and Shanghai Banking Corporation(HSBC)of a stake in the Bank of Communications(BoCom), Chinas fifth largest bank, was the first major transaction. Since June 2005, foreign investors have invested or committed to invest over USS14 billion in the three large state-owned commercial banks, and all three have acquired strategic investors: the Bank of America(BOA)in China Construction Bank(CCB),a consortium led by Royal Bank of Scotland(rBS)in the Bank of China(BOC), and Goldman Sachs led investor group in the Industrial and Commercial Bank of China (ICBC). Table 1 provides an overview of these investments Box 1. Opening the Banking Sector to Foreign Investment in Late 2006 In its WTO accession agreement, China has committed to a phased-in liberalization of foreign bank access to its banking market, with the aim to fully open its banking sector to foreign bank participation, without geographic or client restrictions, effective December 11. 2006 Foreign banks and branches would be permitted to engage in a similar range of financial services as Chinese banks, and they would be treated and regulated in the same way as domestic banks. Specifically, for conducting local currency business, geographic restrictions were to be lifted as of December 11. 2006. With regard to commercial presence, there would be no geographic restrictions for conducting foreign currency business. In addition, foreign financial institutions licensed to provide local currency services in one region would be able to do so in any other region that has been opened for such business. As of December 11, 2006 all non-prudential market access constraints on foreign banks which restrict ownership, operation, and juridical form of foreign financial institutions, including on internal branching and licenses were also be lifted In November 2006, the authorities issued Regulations for the administration of foreign Funded Banks, which should implement the WTO commitments. As a result of these new regulations, access to Chinese banking market will be easier, but building a larger presence could take some time as foreign banks must satisfy certain requirements before they can granted approval for offering full domestic currency services to Chinese individuals. To fulfill these requirements, foreign banks must establish an incorporated affiliate in China with minimum capital of RMb 1 billion and each branch must have a minimum capital of RMB 100 million. Furthermore, foreign financial institutions plying to engage in local currency business must have three years of business operation experience in China and have been profitable for two consecutive years prior to applying Ownership by a single foreign investor is limited to 20 percent, while the combined share of all foreign investors in one bank is limited to 25 percent.5 state-owned banks gathered speed and as the government began to permit higher foreign ownership.4 Since 2004, foreign strategic investors have entered in four of the largest five banks. The 2004 purchase by Hong Kong and Shanghai Banking Corporation (HSBC) of a stake in the Bank of Communications (BoCom), China’s fifth largest bank, was the first major transaction. Since June 2005, foreign investors have invested or committed to invest over US$14 billion in the three large state-owned commercial banks, and all three have acquired strategic investors: the Bank of America (BOA) in China Construction Bank (CCB), a consortium led by Royal Bank of Scotland (RBS) in the Bank of China (BOC), and Goldman Sachs led investor group in the Industrial and Commercial Bank of China (ICBC). Table 1 provides an overview of these investments. 4 Ownership by a single foreign investor is limited to 20 percent, while the combined share of all foreign investors in one bank is limited to 25 percent. Box 1. Opening the Banking Sector to Foreign Investment in Late 2006 In its WTO accession agreement, China has committed to a phased-in liberalization of foreign bank access to its banking market, with the aim to fully open its banking sector to foreign bank participation, without geographic or client restrictions, effective December 11, 2006. Foreign banks and branches would be permitted to engage in a similar range of financial services as Chinese banks, and they would be treated and regulated in the same way as domestic banks. Specifically, for conducting local currency business, geographic restrictions were to be lifted as of December 11, 2006. With regard to commercial presence, there would be no geographic restrictions for conducting foreign currency business. In addition, foreign financial institutions licensed to provide local currency services in one region would be able to do so in any other region that has been opened for such business. As of December 11, 2006 all non-prudential market access constraints on foreign banks which restrict ownership, operation, and juridical form of foreign financial institutions, including on internal branching and licenses were also be lifted. In November 2006, the authorities issued Regulations for the Administration of Foreign￾Funded Banks, which should implement the WTO commitments. As a result of these new regulations, access to Chinese banking market will be easier, but building a larger presence could take some time as foreign banks must satisfy certain requirements before they can granted approval for offering full domestic currency services to Chinese individuals. To fulfill these requirements, foreign banks must establish an incorporated affiliate in China with minimum capital of RMB 1 billion and each branch must have a minimum capital of RMB 100 million. Furthermore, foreign financial institutions applying to engage in local currency business must have three years of business operation experience in China and have been profitable for two consecutive years prior to applying