International banks keen to secure a foothold in China will soon be allowed to directly and easily set up wholly owned subsidiaries in Shanghai, but only in a new free-trade zone in the Pudong New Area.
Foreign banks will also be permitted to establish joint-venture banks with mainland partners, either state-backed or from the private sector. The overseas partner can own the majority stake.
The milestone plan cuts a lengthy approval process for banks to set up shop in China. The move also shows the government's determination to bring in more competition to domestic banks.
Currently, foreign banks who want to establish a presence in China need to first set up a representative office, which will be used for communication and consulting purposes. The office can only be upgraded to a full-scale bank branch after two years, provided it has not breached any financial rules.
If the foreign bank wants to set up more branches it has to undergo a long approval process involving the banking regulator and relevant government bodies, such as the tax department.
The zone will also be open to domestic and foreign financial services companies, such as accounting and rating agencies.