Impact of Foreign Bank Entry on the Performance of Chinese Banks

Abstract

Since China joined the World Trade Organization (WTO) in 2001, the Chinese banking sector has entered a new era. In order to comply with its WTO commitments, the Chinese government has progressively removed regulatory obstacles and adopted numerous reforms to open up its banking sector to competition-both domestic and foreign. Regulation and supervision within the Chinese banking sector have also improved in order to meet international standards. Over the five-year period following entry into the WTO, the geographical coverage and business scope restrictions on foreign banks have gradually been removed. Since December 2006, all Chinese cities have allowed locally incorporated foreign banks to engage in both local and foreign currency business with all types of customers, and the Chinese banking sector has been fully opened up. The total assets of foreign banks reached 1.7 trillion RMB in 2010, with an average annual growth rate of 20.3 percent over the period from 2002 until 2010.