Foreign banks in the People's Republic of China

Journal of Contemporary China

Volumn 6, Issue 15, 1997, Pages 365-376

  Leung, Man Kwong ^a,b  

^a HONG KONG POLYTECHNIC UNIVERSITY   (Hong Kong)

^b UNIVERSITY OF MANCHESTER   (United Kingdom)

Author keywords

[No Author keywords available]

Indexed keywords

BANKING; FINANCIAL LIBERALISATION; FOREIGN DIRECT INVESTMENT;

CHINA;

EID: 0031423934     PISSN: 10670564     EISSN: None     Source Type: Journal    
DOI: 10.1080/10670569708724283     Document Type: Article

References (26)

1. See June 1990 issue of the Butterworths Journal of International Banking and Finance Law for a description of the development of foreign banks in China since the late eighteenth century.
2. Only four non-PRC banks have remained, namely, Hongkong and Shanghai Banking Corporation and Bank of East Asia from Hong Kong; Standard Chartered from the UK; and Oversea-Chinese Banking Corporation from Singapore. Their businesses were narrowly confined to inward remittances and acting as agents for the PRC banks in collecting deposits from the public. On 1 December 1984, all these banks in Shanghai were permitted to revitalise their business in trade financing.
3. See Gray, J. M. and Gray, H. P., "The multinational bank: a financial MNC?', Journal of Banking and Finance 5(1), (1981), pp. 33-63; Yannopoulos, G. N., 'The growth of transnational banking', in Casson, M. C., ed., The Growth of International business (London: Allen and Unwin, 1983); Dunning, J. H., Trade location of economic activity and the MNE: a search for an eclectic approach', in Ohlin B., Hesselborn. P. O. and Wijkman. P. M., eds, The International Allocation of Economic Activity (London: Macmillan, 1977).
4. See Gray, J. M. and Gray, H. P., "The multinational bank: a financial MNC?', Journal of Banking and Finance 5(1), (1981), pp. 33-63; Yannopoulos, G. N., 'The growth of transnational banking', in Casson, M. C., ed., The Growth of International business (London: Allen and Unwin, 1983); Dunning, J. H., Trade location of economic activity and the MNE: a search for an eclectic approach', in Ohlin B., Hesselborn. P. O. and Wijkman. P. M., eds, The International Allocation of Economic Activity (London: Macmillan, 1977).
5. See Gray, J. M. and Gray, H. P., "The multinational bank: a financial MNC?', Journal of Banking and Finance 5(1), (1981), pp. 33-63; Yannopoulos, G. N., 'The growth of transnational banking', in Casson, M. C., ed., The Growth of International business (London: Allen and Unwin, 1983); Dunning, J. H., Trade location of economic activity and the MNE: a search for an eclectic approach', in Ohlin B., Hesselborn. P. O. and Wijkman. P. M., eds, The International Allocation of Economic Activity (London: Macmillan, 1977).
6. Cho, K. R., Multinational Banks: Theirldentities and Determinants (Ann Arbor: UMI Research Press, 1985).
7. Campbell, T. and Kracaw, W., 'Information production, market signalling, and the theory of financial intermediation', Journal of Finance 35(4), (1980), pp. 863-882.
8. Goldberg, L. G. and Saunders, A., "The determinants of foreign banking activity in the United States', Journal of Banking and Finance 5(1), (1981), pp. 17-32; Cho, K. R., Multinational Banks: Their Identities and Determinants, op. cit.
9. Goldberg, L. G. and Saunders, A., "The determinants of foreign banking activity in the United States', Journal of Banking and Finance 5(1), (1981), pp. 17-32; Cho, K. R., Multinational Banks: Their Identities and Determinants, op. cit.
10. Goldberg, L. G. and Johnson, D., "The determinants of US banking activity abroad', Journal of International Money and Finance 9(2), (1990), pp. 123-127; Grosse, R. and Goldberg, L. G., 'Foreign bank activity in the U.S: an analysis by country of origin', Journal of Banking and Finance 15(6), (1991), pp. 1093-1112.
11. Goldberg, L. G. and Johnson, D., "The determinants of US banking activity abroad', Journal of International Money and Finance 9(2), (1990), pp. 123-127; Grosse, R. and Goldberg, L. G., 'Foreign bank activity in the U.S: an analysis by country of origin', Journal of Banking and Finance 15(6), (1991), pp. 1093-1112.
12. Tschoegl, A. E., 'Foreign direct investment in banking in Japan and California', in Rugman, A. M., ed., New Perspectives on the Multinational Enterprise: Theory and Application (London: Crom Helm, 1982).
13. Due to limited availability of time-series data, the problem of multicollinearity has arisen when all these highly correlated independent variables are included. The choice of trade as the independent variable stems from the practical consideration that foreign direct investment and loans to the PRC are usually trade-related.
14. In 1992, Shenzhen, the largest special economic zone in the PRC, had a total of 379 offices of banks, insurance companies, and other types of financial institutions of which there were sixteen branches and nine ROs of foreign banks. In Shanghai, there was a total of 1,762 offices, of which there were twenty branches and thirty-five ROs of foreign banks (Shenzhen Yearbook, 1993; and Shanghai Yearbook, 1993).
15. Tschoegl, A. E., 'Foreign direct investment in banking in Japan and California', op. cit.
16. Banks from Japan, Germany and the US were the three largest countries accounting for 26.9%, 12.6% and 11.1% of the world's international assets in 1993 (Bank for International Settlement, 1994 annual report).
17. The Banker uses the term 'capital asset ratio' as a measure of the soundness of a bank. It is arrived at by dividing the tier-one capital of a bank by its total assets. The higher the ratio, the more financially sound the bank is. As only tier-one capital is taken into consideration, it is a more restrictive and demanding measure than the capital adequacy ratio of the Bank for International Settlement.
18. Sung, Y. W., China-Hong Kong Connections: The Key to China 's Open-Door Policy (New York: Cambridge, 1991).
19. World Bank, 'China: financial sector policies and institutional development, World Bank (Washington, 1990).
20. Whilst the income tax ceiling can be as high as 40%, branches of foreign banks are only required to pay an income tax of 10% on their interest income sources in the special economic zones and Economic and Technological Development Zones, and an income tax of 20% on their interest income sources in other areas in the PRC. In addition, the consolidated Industrial and Commercial Tax rate ranges from 5% to 7% in other areas of the PRC, while the normal rate for foreign bank branches is only 3% in the special economic zones. Moreover, they may also be exempted at the discretion of tax authorities in the special economic zones. Despite the above concessions, foreign bank offices are, however, taxed separately and individually in the zones where they are doing business. It is, therefore, not possible to tax a foreign bank on a consolidated basis within China. Losses in one branch cannot be offset against profits from another.
21. Knickerbocker, F. T., Oligopolistic Reaction and Multinational Enterprise (Cambridge, MA: Harvard University Press, 1973).
22. Foreign banks are paying much higher office and residential rents in the capital city than in other Asian cities. According to a survey on business cost in 1993 by the Economist Intelligence Unit, banks are paying more than US$50 per square metre for prime office space in Beijing. Jakarta, the next most expensive, is well under US$20. (See 7 October 1993 issue of the South China Morning Post of Hong Kong).
23. Not all banks are undeterred by all these restrictions. The general manager of the Deutsche Bank branch in Hong Kong disclosed that the bank had been invited to start a branch in China. However, the bank has declined this invitation, as restrictions on the operations of a branch are considered to be excessive. So far, the bank has only one RO in Beijing, which was set up in 1981. (27 April 1992 issue of the Hong Kong Economic Times).
24. Leung, M. K., 'The PRC banking reform and its implications for Hong Kong as an international banking centre', in Davis, H., ed., China Business: Contexts and Issues (Hong Kong: Longman, 1995).
25. Events in Tiananmen Square in 1989 resulted in most foreign bankers being more cautious towards the China market. However, after only a year the economy recovered as most governments and commercial bankers resumed lending to China.
26. Even if the restrictions on the local currency operations of foreign banks are relaxed, access to local currency remains a problem for foreign banks with no branch networks. Therefore, China may need to liberalize the foreign exchange market and the interbank market in renminbi for foreign banks so that the latter can compete with local banks for retail business.