Regulation and supervision of foreign banks in China after China's WTO accession

Abstract

China has gradually re-opened its door to foreign banks after the economic reform in late 1970s. Before the WTO accession, relative laws attempted to protect domestic banks by imposing strict controls on foreign banks. Much emphasis was placed on market entry requirements, but the subsequent supervisory measures insufficient. This approach is challenged by China’s WTO accession which has widely opened the Chinese banking sector to foreign banks. Without appropriate regulation and supervision, the presence of foreign banks may impair the stability of Chinese financial system as well as the interest of Chinese creditors. By revising existing laws and promulgating new laws according to the WTO commitment, China has improved its foreign bank regulatory and supervisory regime. The establishment of the China Banking Regulatory Commission (CBRC) in 2003 demonstrated the government’s determination to enhance banking regulation and reshape the banking sector. However, further improvements in many aspects are desirable. In the author’s view, after the WTO accession, banking regulation and supervision, no matter whether for domestic or foreign banks, should aim to ensure the safety, soundness and competitive equality of the banking sector. After studies of the Basel documents and the practices of other jurisdictions, the author proposes a set of reforms to improve the regulation on and supervision over foreign banks in China.